Selling a professional services firm in Singapore

What a buyer is actually underwriting

In a professional services firm the assets go home every evening and the clients can leave with them. A buyer knows this, and everything about how these deals are priced and structured follows from it.

The question they are answering is how much of your revenue survives your departure. Where the answer is most of it, because the work is recurring and the relationships sit with a team, this is a good sector to sell in. Where the answer is unclear, the response is not usually a lower price so much as a different structure, with a large part of the consideration made conditional.

How the multiple range is applied

The indicative range is 3.5x to 5.5x normalised EBITDA. Normalisation in a partner-run practice is significant and often uncomfortable: the profit an owner draws includes payment for the fee-earning work they personally do. A buyer charges the market cost of replacing that work before applying any multiple.

Within the range:

• Recurring versus project. Compliance work that renews annually is the highest quality revenue in this sector.
• Client concentration. A practice where no client exceeds a few percent of fees is far safer than one built on a handful of large accounts.
• Fee earner continuity. Managers and partners staying, ideally with something contractual.
• Systems and files. Documented processes and a proper practice management system, rather than knowledge held individually.

An illustrative example

Illustrative figures, chosen to show the mechanics.

An accounting practice bills S$1.9m with reported profit of S$700,000 after the principal takes S$150,000. The principal personally delivers work that would cost S$250,000 to replace at market rates, so normalisation reduces earnings by S$100,000. Normalised EBITDA is around S$600,000.

At 3.5x that is roughly S$2.1m, at 5.5x roughly S$3.3m.

Suppose 70 percent of fees are recurring compliance work, spread across 240 clients with none above 3 percent, and two managers are staying. That is a top-of-range business. Suppose instead that 60 percent of fees come from twelve advisory clients who engaged because of the principal. The multiple falls, and more importantly the structure changes: expect a substantial portion held back against retention.

Structure is the negotiation

Owners of professional practices often focus on the multiple when the deferred consideration mechanism matters more to what they actually receive.

Three questions decide it. What proportion is paid at completion. What the deferred part is measured against, revenue retention or profit or client count. And over what period. A high headline price with 50 percent contingent on two-year client retention may be worth less than a lower price paid mostly up front, depending on how confident you are.

Work out your own view on those three before you begin, so you can trade between price and certainty knowingly.

Where to start

Split your fees into recurring and project, and count how many clients engaged because of you personally rather than the firm. Those two numbers predict your outcome better than your profit does. Then get an indicative range. The exit-readiness check scores the ten factors a buyer verifies.