Large, growing capital looking for great advice businesses

A large and growing pool of capital around the world is looking for great advice businesses to invest in and those that are professionalised will be considered front of queue, according to a panel discussion. 

At the Professional Planner Advice Practitioner Summit last week, Koda Capital CEO Paul Heath said profitability, professionalism and succession planning are among the key elements external investors look for. 

“Capital gets attracted to sustainably profit business models universally – in the wealth advice industry here in Australia, there are now many models that can demonstrate sustainable profitability,” he said. 

“It was quite hard under the old structure of vertical integration to demonstrate that in the way that you can do it today. Sustainable profitability is important.” 

In the last 12 months, US-based firm Emigrant Partners purchased an ownership stake in the Koda and months later executed a merger with WA-based advice firm Redwood Wealth Alliance. 

“Professionalism is a signal for a sustainable investment model; these investors, by and large, are looking for long term investment capable investment opportunity,” Heath said. 

“They want to deploy their capital into profitable businesses for long periods of time. The professionalism of the practices they are buying is critical that because it points towards sustainability.” 

The third element investors look for, according to Heath, is the demonstration of a succession plan. 

A succession plan is valuable because investors want to see multiple generations of professionals use their capital to grow the business, Heath said. 

“I also look for disruption because disruption equals opportunity for professional investors. That’s where they can bring their experience and expertise and deploy it in a really important way.” 

Global Adviser Alpha & Merchant Investment Management principal David Haintz said the starting point to attracting capital is by making deliberate plans around the future of the business. 

He added that means reviewing why the business exists, if key stakeholders are enjoying the work, and the path to further growth. 

“[If] you’re implementing that, and you’re a bit of an entrepreneurial type, you’ll be attractive, at least to initial conversations from a business perspective,” he said. 

Diverger head of mergers and acquisitions Wayne Marsh said advice firms should be attractive from an external capital perspective for those that are growing, but accepts that might not be of interest to all businesses. 

“There’s no right or wrong,” he said. 

“Some people are happy running small firms, capping their revenue, not looking for growth, playing golf, working the golf handicap, and there’s nothing against there’s nothing wrong with that.”