What does value mean to you?
Value of your Portfolio
Value could mean asset valuation to one person and business profitability to another. Both can be considered when looking at maximising the value of your strata business .
Taking this into consideration there are probably two ways of increasing the value of your business, through increased profits and increased asset valuation.
To increase profits the following can be considered:
- office efficiency
- internal cost control
- staff retention
- overall pricing strategy
- maximising charge-outs
- staff training
To increase the traditional asset valuation the following can be considered:
- number of lots under management
- the average lot size
- current signed agreements
- length of the agreements
Business Valuation Multiples
Business Valuation Multiples is not an exact science and is driven by market forces. Given the lack of any other reliable valuation method, the intrinsic value of the strata roll is generally determined by a market multiple of the annual aggregated total of contractually based strata administration fees (often referred to as 'secretarial' fees).
The appropriate multiple can be subject to the differing qualitative aspects (e.g. location, size, software systems, reputation, lot concentrations etc.) of the strata roll itself.
There can be some elasticity in multiples depending on the strata portfolio’s average lot size, percentage of signed full term agreements, software used, perceived attachment to an outgoing owner and the geographic location of buildings. Generally, smaller lot/fee portfolios, or those with material concentrations of revenue will sell at a multiple below the average.
There is also a propensity for larger strata management businesses to sell on a multiple of earnings (four to six times) rather than on a secretarial fee multiple.
Some strata managers operate an ‘all in’ fee model whereupon the fee charged per Lots Under Management to each body corporate is materially higher, but the services provided under the contract include all of those ordinarily considered to be additional. This may have a tendency to reduce (slightly) the overall potential revenue pool but it adds more certainty to the income line of the strata manager and to the expense line of the body corporate.
Considerations for Buying and Selling
As a Seller who are the Buyers?
- a large national strata company
- a local strata business
- management buyout/buy-in
Important considerations for Buyers include:
- the price
- the client type
- conditions of the purchase contract
- reputation of the vendor
- cultural fit into current business
- ease of integration into the business
Important considerations for Sellers include:
- the price
- if their clients will be looked after
- their current staff
- reputation of the purchaser
- what will be their post-sale role
- cultural fit of both businesses
- unique services currently offered
- is there any key man dependency
Looking at all aspects is important when considering buying or selling a strata portfolio.
More information is available from Strata Business Planning or speak to the team at StrataMax with over 25 years in the industry.
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