Scale has become a buzzword for advice practices but for businesses to grow, it must be done off the back of organic growth according to a panel discussion.
“Always prioritise organic growth over M&A… [an acquisition] should be the cherry on top,” Macquarie Group head of new business Jamie Melville told the Professional Planner Advice Practitioner Summit.
Alteris Financial Group epitomised this philosophy – after building organically it made the decision to pursue M&A.
The firm’s chief operating officer, Lisa Fuentes, has been involved in eight acquisitions over six years.
She started with the group 20 years ago when it was based in a small office Paramatta shared with another accounting firm.
“We went through all the organic growth stories that a lot of businesses have today,” Fuentes said.
“It got to about 2016 and the CEO and managing director at the time said, ‘look this is getting boring – I’ve refined the business so many times over I just want to do something different and I want to grow’.”
Fuentes was learning on the job as they went through the various acquisitions.
“We wanted to do bigger and better things and organic growth is not going to support that. We went on this journey of acquisition, acquiring businesses,” Fuentes said.
“The biggest learning curve through all of that is the bite-sized pieces; doing one transaction at a time, learning from each of them and moving forward.”
Her advice to other buyers looking at businesses it to focus on the opportunity at hand.
“Understand why you’re buying that business and looki at it as being a successful business in its own right because you wouldn’t be looking at it if it wasn’t,” Fuentes said.
“What is this business going to bring to the table? When you understand where that value is all your energy, time, and conversations internally with clients, is focused on that value.”
Cleaning up
Natalie Isborn, principal of business transaction firm JNP Advisory, said not tidying up the balance sheet is a sign a business might not be ready for sale.
“I’ve looked at businesses that have tractors on the balance sheet or a swimming pool in the office complex,” Isborn said.
Another mistake sellers make is going “gung-ho” into a deal but avoid having hard conversations about the transaction up front, she said.
Putting as much detail in the term sheet stage is essential, she added.
“Particularly on those items we know down the track that will be in dispute when you get into the legal agreements.”
For example, agreeing whether the seller will be part of the new business and what the terms and conditions of that relationship might be.
“If [the deal doesn’t] have that up front then everyone gets financially and emotionally involved in the transaction,” Isborn said.
“The deals can be lost at the end stage because you thought you had an agreement but when it comes down to putting it on paper, you didn’t actually have an agreement. Having those hard conversations up front is a key to avoiding heartache down the track.”
Welcome to the family
All stakeholders of the transaction should be part of the process and for either side of the transaction meeting staff is an important part.
However, Isborn said finding the right time to bring staff into the process is a sensitive issue.
“I’ve seen agreements where the staff have met [a potential] buyer before the legal agreements are in place, the deal then fell over,” Isborn said.
She pointed to an example when a new buyer came in, but the staff preferred the connection they had with the previous buyer.
“We had to fix that because the staff went too far into the integration phase before the legal agreement had actually been signed,” Isborn said.
“Our general advice is to sign the legal agreement first and if you have a gap between signing and completion that’s when you can meet the staff.”
At the end of the day, Melville said the seller just wants to know they’re getting a “fair deal”.
“They want to know that after their 30-40 years of hard work that they’re treated with respect,” Melville said.
