Harold Wilson famously said that a week is a long time in politics. These days I think it’s an hour!
But in the accountancy profession things are not famed for moving anywhere quickly.
In December I wrote that I did not expect multiples to budge beyond the range of 1x GRF to 1.2x GRF, where they have stubbornly sat for as long as I have been in this game, and that is 2007.
Time to eat my words.
Mind you I have also long commented that it makes no sense given the imbalance between buyers and sellers. I really bugged me, to be honest.
Cast your mind back to your first economics lesson and the supply and demand curve, fundamental to every market and a bedrock of that dismal art.
A notable exception, well at least the one I am very familiar with, is accountancy practices. So what is it that keeps the multiple paid between 1x GRF and 1.2x for in spite of demand outstripping supply, in many places by a significant amount, where ordinarily one would expect to see prices climb steadily?
I don’t know, but presumably it can only be the market doing it’s job of price discovery.
That price is about to change.
During Covid there has been what economists would describe as a supply-side shock. Many practitioners were so busy helping clients navigate the myriad support schemes or reinvent their businesses that any thoughts of selling up were quickly kicked into the long grass, although they really do want to close their ledgers.
It got me thinking – how long can the imbalance of supply and demand coupled with a dearth of opportunities last without multiples rising?
We have arrived at the answer.
Buyers have quickly become acutely aware of this and instead of sitting and waiting for something to come along they know that they are going to have to dig deeper into their pockets or formulate plan B.
Private equity has been circling the profession in recent years but now there are new entrants who are willing to go the extra mile to muscle in. These new kids on the block are smaller and more loosely structured and as their investors are unwilling to invest further in frothy and uncertain equity markets, they will pay more for access to a cash cow in the form a staid and stable business model that is easy to understand and underpinned by compliance requirements.
That leaves three questions for now.
How far will prices rise, will there be a ripple effect across the market and will if tempt you sell?