Your Practice Valuation
Your Practice Valuation
Practice Valuation For ADVISOR SAMPLE
Practice Valuation by Key Management Group
Our practice valuation and consulting services provides you with accurate and meaningful information to guide you in succession planning, practice acquisitions, and equity management.
Our Approach
Unique Methodology
Individualized Service
We provide a unique combination of real life
We deliver a valuation that integrates the
Consulting is part of every valuation that we
experience, traditional M&A principals, and
industry specific “multiple” based valuation
deliver - we go deeper than the numbers in
industry specific market knowledge. In
with the more established M&A practice of
the analysis. Our process includes a focus on
addition, our analysis is provided within the
using a “discounted cash flow” method. The
the “non-price” factors that can greatly
context of a consulting relationship.
integration of the two methods balances the
influence the success of a deal
views of buyer and seller
Benefits Information and advice you can trust to make “game changing” decisions
Value accuracy resulting from our integrated dual valuation methodology
Practice Valuation by Key Management Group
A better understanding of all the factors that make your deal successful
It is important that you have a general understanding of our valuation methodology to get the maximum value from this analysis. A detailed review will take place during our phone consultation.
Valuation Methodology Our valuation methodology is unique in that it utilizes the commonly used financial services industry standard (multiple based) with a more established mergers and acquisition approach (discounted cash flow). By establishing a value based upon the average of the two methods, you can be assured that the value is a fair representation of the true value. Multiple Based Method Our multiple based valuation methodology looks at the ratio of recurring and non-recurring revenue. Recurring revenue multiples increase as the ratio of recurring to non-recurring revenue increases. Non-recurring revenue multiples are based on how long it takes to access or re-position the assets that are currently not generating recurring revenue. Discounted Cash Flow Method Our discounted cash flow methodology uses a discount or “hurdle” rate by combining a risk free return rate of return (U.S. Treasury Bills) and an industry specific liquidity risk factor. By using a net revenue (after operating expenses) benchmark, our analysis provides you with a solid cash flow based valuation (Net Present Value).
Practice Valuation by Key Management Group
Your Practice Valuation PRACTICE DATA Advisor Name
Sample
Date
Total GDC Current 26 PD
$350,000
Transaction Based GDC %
16%
Transaction Based GDC
$47,040
2/11/13
Assets Under Management
$51,000,000
Payout %
84%
Post Payout GDC (Revenue)
$294,000
Recurring Revenue %
84%
Asset Velocity
Recurring Revenue
$246,960
0.69
Value Impact of Asset Velocity
Positive
Multiple Based Valuation
$624,221
Discounted Cash Flow Valuation
$497,829
Mixed Average Valuation
$561,025
Note Carried By Seller
$420,769
Scheduled Payment Amount
$29,179
Total Economic Value
$607,119
Multiple Based Valuation
$639,744
Discounted Cash Flow Valuation
$741,662
Mixed Average Valuation
$690,703
Note Carried By Seller
$518,027
Scheduled Payment Amount
$25,117
Total Economic Value
$775,494
4 YEAR TERM Transaction Based Multiple Growth Rate
0.67 5.00%
Recurring Revenue Multiple Discount Rate
2.40 12.00%
Reference Value Down Payment %
25%
Down Payment
Annual Interest Rate
5%
Payments Per Year
4
4
Principal & Interest
$466,863
Term in Years
$140,256.27
6 YEAR TERM Transaction Based Multiple Growth Rate
1.00 5.00%
Recurring Revenue Multiple Discount Rate
2.40 12.00%
Reference Value Down Payment %
25%
Down Payment
Annual Interest Rate
5%
Payments Per Year
4
6
Principal & Interest
$602,818
Term in Years
Practice Valuation by Key Management Group
$172,675.76
Benchmark Data Decile Groupings Benchmark This value factor looks at the risk associated with an aging client base and its potential impact on Asset Attrition and Net Flows.
Client Decile Top 10% 2nd 10% 3rd 10% 4th 10% 5th 10% 6th 10% 7th 10% 8th 10% 9th 10% 10th 10%
Average Client Age Compared to Benchmark sample Benchmark Difference 67 64.84 2.16 60 62.81 -2.81 55 62.14 -7.14 57 61.57 -4.57 62 60.65 1.35 62 59.43 2.57 61 57.84 3.16 55 53.24 1.76 50 50.51 -0.51 47 55.51 -8.51
This value factor looks at the risk of client transfer attrition associated with a shorter L.O.R. in Years.
Client Decile Top 10% 2nd 10% 3rd 10% 4th 10% 5th 10% 6th 10% 7th 10% 8th 10% 9th 10% 10th 10%
Length of Relationship in Years Compared to Benchmark sample Benchmark Difference 16 15.38 0.62 14 15.68 -1.68 16 14.70 1.30 14 14.11 -0.11 17 14.81 2.19 15 13.32 1.68 14 12.81 1.19 17 12.05 4.95 9 9.81 -0.81 10 11.19 -1.19
Client Group Metrics Benchmark Client Group Metrics Compared to Benchmark sample Benchmark Difference 129 231.55 -102.55 87 102.29 -15.29 67.44% 44.18% 52.66% $2,647.00 $1,387.39 90.79% $3,773.00 $2,675.55 41.02% $387,024.00 $184,049.26 110.28% 5% 16% -69.58% 7% 25% -72.34%
Client Group Base High Value Client Groups HVC Ratio (# of HVC compared to total # of clients) Average Client Group GDC Average High Value Client Group GDC Average Client Group AUM % of Client Groups with a 26 SP Plan % of High Value Client Groups with a 26 SP Plan
Practice Valuation by Key Management Group
Neutral to Positive Neutral to Positive Positive Positive Positive Positive Negative Negative
Glossary of Terms
Asset Velocity: The ratio of revenue to assets; also referred to as “Return on Assets” = (Total GDC/Assets under Management)*100
Business Valuation: The act or process of arriving at an opinion or determination of the economic value of a business; or an interest therein
Cash Flow: The excess of sources of cash over uses of cash. Cash flow is used in performing the discounted cash flow analysis
Discounted Cash Flow: The present value of future earnings discounted at a rate that approximates the risk
Discount Rate: A “hurdle rate” that combines a risk free return rate and an industry specific liquidity risk factor
Fair Market Value: The price at which a business would change hands between a willing buyer and a willing seller, when the former is not under any compulsion to buy and the latter is not under any compulsion to sell
Net Present Value: The sum of the present values (PVs) of the individual cash flows of the same entity.
Total GDC: Revenue generated before the advisor specific “payout rate” o Post Payout GDC: Revenue received after the advisor specific “payout rate” is applied
Terms: Details of an agreement such as price, payment schedule, interest rate and due date
Transaction Based GDC: Commission based revenue generated (up front) or non-recurring revenue before the advisor specific “payout rate”
Practice Valuation by Key Management Group
Practice Value Statistics
The average recurring revenue multiple has risen over the past ten years; with a likely high point in 2011. Currently, the average multiple for recurring revenue is 2.3.
The average non-recurring revenue multiple is currently 0.83. The average deal was structured with 25% down payment, 75% seller financed (note payable). The length of seller financing averaged 5 years. Average ratio of recurring to non-recurring revenue is 70%/30%.
*Our approximate averages for Ameriprise Deals.
Quick Tips
Seller: o Be clear and transparent about your practice succession vision o The terms of the deal are more important than the sale price o Focus on the best buyer for your business over the highest offer o Most Sellers only sell one business in their lifetime – enlist the help of professionals Buyer: o Your ability to transfer and service the acquired clients is the foundation of any deal o Make acquisition decisions based on a conservative cash flow model o The only good deal works for the everyone - clients, buyer and seller o Respect the acquisition learning curve – enlist the help of professionals
Practice Valuation by Key Management Group
All rights reserved. Except as permitted under the Copyright Act of 1976, no part may be reproduced or distributed in any form or by any means, or stored in a database or retrieval system, without the prior written permission of the publisher. Warning and Disclaimer: This valuation is subject to certain assumptions and limiting conditions. Key Management Group Inc. has not audited or otherwise verified the information provided by the subscriber of these valuation services. Information supporting conclusions as to value is subject to the subscriber’s submission of complete and accurate financial data; including the accuracy of third party reports provided by the subscriber. Possession of this valuation report, or a copy thereof, does not carry with it the right of publication of all or any part of it, nor may it be used for any purpose, by anyone but the person for whom it was prepared, without the previous written consent of the client and Key Management Group. The information in this valuation is provided on an as-is basis. Key Management Group, Inc. shall have neither liability nor responsibility to any person or entity with respect to any loss or damages arising from the information contained in this valuation report. The opinion of value provided herein does not constitute a price guarantee. Printed in the United States of America. Key Management Group, Inc. has prepared the contents of this valuation report as a guide only. We recommend that you consult your local attorney and accountant for additional counsel prior to making final business or financial decisions. IRS CIRCULAR 230 NOTICE: To the extent that this message or any related material concerns tax matters, it is not intended to be used and cannot be used by a taxpayer for the purpose of avoiding penalties that may be imposed by law.
Practice Valuation by Key Management Group
Practice Valuation For ADVISOR SAMPLE
Practice Valuation by Key Management Group
Our practice valuation and consulting services provides you with accurate and meaningful information to guide you in succession planning, practice acquisitions, and equity management.
Our Approach
Unique Methodology
Individualized Service
We provide a unique combination of real life
We deliver a valuation that integrates the
Consulting is part of every valuation that we
experience, traditional M&A principals, and
industry specific “multiple” based valuation
deliver - we go deeper than the numbers in
industry specific market knowledge. In
with the more established M&A practice of
the analysis. Our process includes a focus on
addition, our analysis is provided within the
using a “discounted cash flow” method. The
the “non-price” factors that can greatly
context of a consulting relationship.
integration of the two methods balances the
influence the success of a deal
views of buyer and seller
Benefits Information and advice you can trust to make “game changing” decisions
Value accuracy resulting from our integrated dual valuation methodology
Practice Valuation by Key Management Group
A better understanding of all the factors that make your deal successful
It is important that you have a general understanding of our valuation methodology to get the maximum value from this analysis. A detailed review will take place during our phone consultation.
Valuation Methodology Our valuation methodology is unique in that it utilizes the commonly used financial services industry standard (multiple based) with a more established mergers and acquisition approach (discounted cash flow). By establishing a value based upon the average of the two methods, you can be assured that the value is a fair representation of the true value. Multiple Based Method Our multiple based valuation methodology looks at the ratio of recurring and non-recurring revenue. Recurring revenue multiples increase as the ratio of recurring to non-recurring revenue increases. Non-recurring revenue multiples are based on how long it takes to access or re-position the assets that are currently not generating recurring revenue. Discounted Cash Flow Method Our discounted cash flow methodology uses a discount or “hurdle” rate by combining a risk free return rate of return (U.S. Treasury Bills) and an industry specific liquidity risk factor. By using a net revenue (after operating expenses) benchmark, our analysis provides you with a solid cash flow based valuation (Net Present Value).
Practice Valuation by Key Management Group
Your Practice Valuation PRACTICE DATA Advisor Name
Sample
Date
Total GDC Current 26 PD
$350,000
Transaction Based GDC %
16%
Transaction Based GDC
$47,040
2/11/13
Assets Under Management
$51,000,000
Payout %
84%
Post Payout GDC (Revenue)
$294,000
Recurring Revenue %
84%
Asset Velocity
Recurring Revenue
$246,960
0.69
Value Impact of Asset Velocity
Positive
Multiple Based Valuation
$624,221
Discounted Cash Flow Valuation
$497,829
Mixed Average Valuation
$561,025
Note Carried By Seller
$420,769
Scheduled Payment Amount
$29,179
Total Economic Value
$607,119
Multiple Based Valuation
$639,744
Discounted Cash Flow Valuation
$741,662
Mixed Average Valuation
$690,703
Note Carried By Seller
$518,027
Scheduled Payment Amount
$25,117
Total Economic Value
$775,494
4 YEAR TERM Transaction Based Multiple Growth Rate
0.67 5.00%
Recurring Revenue Multiple Discount Rate
2.40 12.00%
Reference Value Down Payment %
25%
Down Payment
Annual Interest Rate
5%
Payments Per Year
4
4
Principal & Interest
$466,863
Term in Years
$140,256.27
6 YEAR TERM Transaction Based Multiple Growth Rate
1.00 5.00%
Recurring Revenue Multiple Discount Rate
2.40 12.00%
Reference Value Down Payment %
25%
Down Payment
Annual Interest Rate
5%
Payments Per Year
4
6
Principal & Interest
$602,818
Term in Years
Practice Valuation by Key Management Group
$172,675.76
Benchmark Data Decile Groupings Benchmark This value factor looks at the risk associated with an aging client base and its potential impact on Asset Attrition and Net Flows.
Client Decile Top 10% 2nd 10% 3rd 10% 4th 10% 5th 10% 6th 10% 7th 10% 8th 10% 9th 10% 10th 10%
Average Client Age Compared to Benchmark sample Benchmark Difference 67 64.84 2.16 60 62.81 -2.81 55 62.14 -7.14 57 61.57 -4.57 62 60.65 1.35 62 59.43 2.57 61 57.84 3.16 55 53.24 1.76 50 50.51 -0.51 47 55.51 -8.51
This value factor looks at the risk of client transfer attrition associated with a shorter L.O.R. in Years.
Client Decile Top 10% 2nd 10% 3rd 10% 4th 10% 5th 10% 6th 10% 7th 10% 8th 10% 9th 10% 10th 10%
Length of Relationship in Years Compared to Benchmark sample Benchmark Difference 16 15.38 0.62 14 15.68 -1.68 16 14.70 1.30 14 14.11 -0.11 17 14.81 2.19 15 13.32 1.68 14 12.81 1.19 17 12.05 4.95 9 9.81 -0.81 10 11.19 -1.19
Client Group Metrics Benchmark Client Group Metrics Compared to Benchmark sample Benchmark Difference 129 231.55 -102.55 87 102.29 -15.29 67.44% 44.18% 52.66% $2,647.00 $1,387.39 90.79% $3,773.00 $2,675.55 41.02% $387,024.00 $184,049.26 110.28% 5% 16% -69.58% 7% 25% -72.34%
Client Group Base High Value Client Groups HVC Ratio (# of HVC compared to total # of clients) Average Client Group GDC Average High Value Client Group GDC Average Client Group AUM % of Client Groups with a 26 SP Plan % of High Value Client Groups with a 26 SP Plan
Practice Valuation by Key Management Group
Neutral to Positive Neutral to Positive Positive Positive Positive Positive Negative Negative
Glossary of Terms
Asset Velocity: The ratio of revenue to assets; also referred to as “Return on Assets” = (Total GDC/Assets under Management)*100
Business Valuation: The act or process of arriving at an opinion or determination of the economic value of a business; or an interest therein
Cash Flow: The excess of sources of cash over uses of cash. Cash flow is used in performing the discounted cash flow analysis
Discounted Cash Flow: The present value of future earnings discounted at a rate that approximates the risk
Discount Rate: A “hurdle rate” that combines a risk free return rate and an industry specific liquidity risk factor
Fair Market Value: The price at which a business would change hands between a willing buyer and a willing seller, when the former is not under any compulsion to buy and the latter is not under any compulsion to sell
Net Present Value: The sum of the present values (PVs) of the individual cash flows of the same entity.
Total GDC: Revenue generated before the advisor specific “payout rate” o Post Payout GDC: Revenue received after the advisor specific “payout rate” is applied
Terms: Details of an agreement such as price, payment schedule, interest rate and due date
Transaction Based GDC: Commission based revenue generated (up front) or non-recurring revenue before the advisor specific “payout rate”
Practice Valuation by Key Management Group
Practice Value Statistics
The average recurring revenue multiple has risen over the past ten years; with a likely high point in 2011. Currently, the average multiple for recurring revenue is 2.3.
The average non-recurring revenue multiple is currently 0.83. The average deal was structured with 25% down payment, 75% seller financed (note payable). The length of seller financing averaged 5 years. Average ratio of recurring to non-recurring revenue is 70%/30%.
*Our approximate averages for Ameriprise Deals.
Quick Tips
Seller: o Be clear and transparent about your practice succession vision o The terms of the deal are more important than the sale price o Focus on the best buyer for your business over the highest offer o Most Sellers only sell one business in their lifetime – enlist the help of professionals Buyer: o Your ability to transfer and service the acquired clients is the foundation of any deal o Make acquisition decisions based on a conservative cash flow model o The only good deal works for the everyone - clients, buyer and seller o Respect the acquisition learning curve – enlist the help of professionals
Practice Valuation by Key Management Group
All rights reserved. Except as permitted under the Copyright Act of 1976, no part may be reproduced or distributed in any form or by any means, or stored in a database or retrieval system, without the prior written permission of the publisher. Warning and Disclaimer: This valuation is subject to certain assumptions and limiting conditions. Key Management Group Inc. has not audited or otherwise verified the information provided by the subscriber of these valuation services. Information supporting conclusions as to value is subject to the subscriber’s submission of complete and accurate financial data; including the accuracy of third party reports provided by the subscriber. Possession of this valuation report, or a copy thereof, does not carry with it the right of publication of all or any part of it, nor may it be used for any purpose, by anyone but the person for whom it was prepared, without the previous written consent of the client and Key Management Group. The information in this valuation is provided on an as-is basis. Key Management Group, Inc. shall have neither liability nor responsibility to any person or entity with respect to any loss or damages arising from the information contained in this valuation report. The opinion of value provided herein does not constitute a price guarantee. Printed in the United States of America. Key Management Group, Inc. has prepared the contents of this valuation report as a guide only. We recommend that you consult your local attorney and accountant for additional counsel prior to making final business or financial decisions. IRS CIRCULAR 230 NOTICE: To the extent that this message or any related material concerns tax matters, it is not intended to be used and cannot be used by a taxpayer for the purpose of avoiding penalties that may be imposed by law.
Practice Valuation by Key Management Group
