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Current Revenue Multiple Ranges

AdvisorBox estimated multiple ranges based on internal experience and industry research. AdvisorBox is not a licensed business valuation firm and does not provide business valuations.

EBITA Multiple Ranges

AdvisorBox estimated multiple ranges based on internal experience and industry research. AdvisorBox is not a licensed business valuation firm and does not provide business valuations.

< $500 MILLION AUM

Range is about 4x to 6x EBITDA

$500M - $1B AUM

Range is about 5x to 9X BITDA

> $1B - $5B AUM

Range is about 7x to 11x EBITDA

Recurring Revenue

2.25x - 3.5x

Recurring Revenue: Revenue generated on a regular basis without selling something again and again. Based on a management fee which is a percentage of assets managed or taking the ongoing trail compensation from annuities and mutual funds instead of upfront.

  • Fees

  • Annuity trails

  • 12b-1s

  • Renewals

  • A share mutual fund trails*

  • SMA / Third-Party Managed

* Slightly More Premium Value

Semi-Recurring Revenue

0.50x - 1x

Semi-Recurring Revenue: A segment of transactional commissions which can be shown as consistent and predictable revenue and therefore has value.

  • Consistent = Over the last 3-5 years.

  • Predictable = Within 10% each year.

This might include more consistent commission business from stock and bonds, REITs, and UITs.

Commission Revenue

0 - 0.25x

Commission Revenue: A product is sold and a commission payment is received in full at the time, and no other ongoing compensation is earned from the transaction.

  • Stocks

  • Bonds

  • REITs

  • UITs

  • Life Insurance*

  • Fixed Annuities*

* Least Amount of Value

  • When in the loan process the valuation is needed

    Valuations are NOT needed before the acquisition loan gets rolling. There are of course circumstances where the advisor will want the valuation sooner than later but banks will almost always approve the loan without a valuation but requiring it as a closing item. In scenarios where the valuation is not expected to be an “issue” it’s not unusual for an advisor to wait until they receive loan approval before they order (or have the bank order for SBA loans) the valuation(s).

    Circumstances where a valuation should be ordered early instead of later in the loan process include:

    SBA loan buyer: where buyer’s estimated value is right at or close to the needed value required not to make a cash down payment. Any advisor with $300,000 in GDC with no business debt will value enough for a $5 million SBA acquisition loan. But an advisor with $100,000 acquiring a $2.5 million practice should value high enough but it’s not a given. In this case a valuation should be ordered right away on the buyer’s practice because you don’t want to find out at the end of the loan process that you’ll have to come up with $250,000 cash down payment or renegotiate the price of the deal.

    SBA or conventional loan seller: where the price appears to be at such a premium that there is reasonable doubt that the third party valuation won’t be as high as the purchase price. For SBA loans the loan amount for the acquisition cannot exceed the valuation amount. For conventional loans, in most cases, the valuation can be less than the purchase price if it seems reasonable and doesn’t trigger the lender’s LTV requirements.

  • Which comes first loan pre-qualification or the valuation?

    The loan pre-qualification term sheet absolutely comes first. While it is nice to have the valuation before an offer is even made that’s not the norm. For the buyer who needs a loan for the purchase it doesn’t really matter what a seller’s practice values at if they can’t get a loan for the purchase price.

    For most buyers, before they start bidding on practices they should first find out how big of a practice they can get a loan to buy. It’s smart to get an Loan Pre-Approval letter that shows how much in acquisition loan dollars the advisor can qualify for and if they would qualify for a conventional or an SBA loan.

  • When a valuation is required on the buyer:

    SBA Loans

    For most SBA acquisition loans where the buyer already has an advisory business there is a valuation completed on the buyer’s business. The short explanation is that in an advisor expansion loan scenario where the buyer already owns an advisory business and is buying another advisor’s business they don’t have to pay a cash down payment. But the value of the buyer’s advisory business minus any business debt must value at just over 10% of the purchase price. To “prove” this the bank orders a valuation on the buyer.

    To explain further, the SBA has a an equity injection rule for 100% ownership transfer acquisition loans. The buyer can pay a minimum of 10% cash down payment on the total amount of the purchase (not the loan amount) or the advisor can use “assets other than cash” option the SBA allows. The “asset” the advisor has other than cash is the value of their advisory business.

    The lender needs to justify the value of the buyer’s practice to meet the equity injection requirement. In most acquisition scenarios with SBA 100% financing loans, third party valuations on both the buyer’s and seller’s practice will be required.

    Conventional Loans

    Requirements vary by lender but not usually for loans under $5 to $10 million (again depending on the lender).

  • Ordering the valuation(s)

    Conventional lenders will typically accept any recent business valuation created by a known valuation firm in our industry like FP Transitions, Succession Resource Group, Key Management Group, and Truelytics.

    SBA lenders however, must be the ones that order the valuation and do so using only the valuation firms who are on their SBA certified valuator vendor approval list.

    The SBA also requires that the lender orders the valuation and that the valuation is prepared for the lender. The SBA specifically prohibits a lender from using a valuation that was prepared for the buyer or seller. For SBA loans be prepared to pay a deposit to the lender before they’ll order the valuations.

  • Who pays for the valuation and how

    SBA Loan

    The SBA lender is required to order the valuation. Most SBA lenders will not do this without a deposit from the borrower. The buyer can pay the deposit (usually around $2500) to the lender when they execute the term sheet or after they receive the approval. If the buyer wants the valuations completed sooner than later the deposit is paid early instead of later in the process.

    Conventional Loan

    Conventional lenders typically do not order the valuation and do not care if the valuation was paid for by the buyer or seller. If the seller already has a recent (less than 6 months old) valuation in hand then this can be accepted. If there is no valuation in place then one needs to be ordered.

    Who orders and pays for the valuation for conventional loans is on a case-by-case basis decided upon between the buyer and seller. Sometimes the seller will pay for the valuation considering that if the buyer can’t qualify they will have the valuation they can use for a different buyer. Sometimes the buyer pays for the valuation to expedite the process with confidence they will be able to qualify for the loan to purchase it.

  • When the valuation is below the asking price

    While conventional lenders have flexibility for this scenario, SBA lenders will not lend for an acquisition amount that is higher than the valuation. If the valuation is lower than the purchase price then the buyer needs to decide if they are still willing to pay the purchase price. If they are willing then the difference needs to be paid in cash (rarely happens) or the difference can be paid through a seller promissory note (almost always what happens). Depending on the size of the difference gap the seller note may be able to be for one to three years or for a longer period like three to seven years depending on the impact to the deal’s cash flow.

    For conventional loans it is usually more about the impact to LTV or loan to value. Since the value of the buyer and seller’s practice is combined when LTV is calculated the discrepancy between the valuation and purchase price would have to be significant to throw a monkey wrench into the approval.

Business Valuations

Third party business valuations are required on the seller’s practice in most cases. Typically conventional lenders will require a valuation if the loan request is $500,000 or more and the SBA requires a valuation for for purchases of $250,000 or more.

Having a valuation in hand before the acquisition loan process begins is helpful but not necessary. Valuations for advisory businesses or client assets are fairly predictable for the majority of deals when the seller’s revenue is under $2 million.

Lenders do not require a valuation at the beginning of the process. In fact, the valuation is a closing item requirement. This means that the acquisition loan can be fully underwritten and approved before the valuation is completed. In these cases, the buyer and seller have agreed upon an estimated price based upon a multiple on revenues. When the valuation is completed then there might be an adjustment.

If your buyer is using an SBA loan then the loan can’t exceed the valuation amount. If the buyer is willing to pay you more than the valuation the difference is typically paid out to you through a seller promissory note. If the buyer is using a conventional loan then there is more flexibility in financing the full amount of the purchase even when the valuation is less than the purchase price (within reason).

There are several third-party valuation companies focused on Financial Advisors. Not all valuation firms are approved with all lenders. Most SBA lenders and some conventional lenders require that they are the one that orders the valuation.

Valuations When Using an SBA Loan

If your buyer is using an SBA loan then the loan can’t exceed the valuation amount. If the buyer is willing to pay you more than the valuation the difference is typically paid out to you through a seller promissory note. If the buyer is using a conventional loan then there is more flexibility in financing the full amount of the purchase even when the valuation is less than the purchase price (within reason).

There are several third-party valuation companies focused on Financial Advisors. Not all valuation firms are approved with all lenders. Most SBA lenders and some conventional lenders require that they are the one that orders the valuation.

For SBA Lending the Valuation Must:

  • Be requested and engaged by the lender

  • Be prepared for the lender

  • Identify whether the transaction is an asset or stock purchase

  • Explicitly state what is included in the sale (including any assumed debt)

  • Include a conclusion of value

  • Include qualifications of the individual performing the valuation

  • Include a signature with certification page

  • The lender may not use an appraisal which is prepared for the applicant or seller

  • The cost of the appraisal may be passed on to the Small Business Applicant