Two ASX-listed licensee companies will combine in a $45.3 million deal with Count acquiring former rival firm Diverger.
Announced to the ASX on Friday morning, the deal pairs two licensees that have both centred their business strategies around offering licensee services and taking equity stakes in advice practices.
But with Count being much more advanced with equity partnerships and Diverger more embedded in its licensee services, the heads of both companies tell Professional Planner the deal allows the new entity to take advantage of both areas of expertise to strengthen the combined business.
“As part of our strategic planning we’ve constantly scanned the market for businesses we like and respect, doing business in a way that’s complementary and a good strategic fit,” Count CEO Hugh Humphrey says.
“There are few organisations in that space but the one in particular that we really liked and respected was Diverger.”
The acquisition will take all three licensees owned by Diverger – GPS Wealth, Paragem and Merit – placing them alongside the Count licensee and Affinia Financial Advisers which was acquired from TAL in March.
Count’s investor presentation notes the new entity will have 379 advisers from Count and around 200 advisers from Diverger. However, the latest ASIC Financial Adviser Register data lists 395 authorised representatives for Diverger which creates the third-largest licensee with over 750 advisers, placing it behind Insignia Financial and AMP.
Humphrey says the numbers on the presentation and ASX release are counting holistic advisers and not limited licensed Authorised Representatives.
“I’m using a number of around 550 but it will probably be higher than that,” Humphrey says. “In Merit, they do have a large number of limited ARs which are accounts with the limited authorisation which is a different type of adviser.”
The transaction, which is due to be completed in early 2024, will represent a total revenue pool of $132 million, and funds under management and advice of $29 billion ($17 billion from Count and $12 billion from Diverger).
Humphrey notes the similar structure between both businesses which include wealth, accounting and services, particularly praising educational and technical support business Knowledge Shop as being a key part of the acquisition.
“As part of our strategic planning we’ve constantly scanned the market for businesses we like and respect, doing business in a way that’s complimentary and a good strategic fit,” Humphrey says.
After being re-buffed in an attempt to acquire Centrepoint Alliance last year, Diverger managing director Nathan Jacobsen says the company is instead willing to be absorbed because of the necessity for licensee businesses to gain scale.
“We have been attracted to a merger to Count for some time, but they’re larger than us so it makes sense that they’d become the acquirer,” Jacobsen says.
“We’ve focused on that service expansion [which now] has more legs. Our focus on equity investment will get more capability to it.”
Post-completion of the acquisition the executive leadership will continue to report to Humphrey and the board will remain unchanged.
Key roles in Diverger will transition to Count with “talented individuals will be secured into new roles or engaged for transitional periods”, according to Count’s announcement.
Jacobsen will remain with the business at the very least until the transaction has been completed with the door potentially open to remain longterm.
“Nathan’s really well regarded by us and by the Diverger shareholders, so he’ll have plenty of opportunities,” Humphrey says.
Jacobsen says he supports Humphrey’s leadership and will keep his personal focus for the next four months on to delivering the business in the “best shape possible” to Count.
“For me personally, it wasn’t necessarily on the cards but we just saw the merit in the businesses coming together and sometimes you’ve got to put your ego to the side and work to interest of shareholders and clients,” Jacobsen says.
“I’m really excited about the future of the industry. We’ve come through some really tough times and this merger is another example of the innovation that’s going to come into the market and I see myself playing an active role in that in the future.”
Closing the deal
Part of the plan includes the identification of approximately $3 million in “cost synergies” and revenue growth opportunities that will be the outcome of business integration and realisation.
Count expects the transaction to deliver a material increase in scale and diversification in revenue and earnings.
“Last year about 73 per cent of our earnings were from our accounting investments, but when we combine the entities together, it’s quite a diversified revenue source,” Humphrey says.
“Less than half of the earnings of the combined entity would come from accounting, about a quarter from services and a quarter from wealth.”
Diverger’s board has unanimously recommended that shareholders vote in favour of the acquisition, unless a better offer is put forward or the independent expert reviewing the deal doesn’t believe the deal is in the best interests of shareholders.
HUB24, the major shareholder of Diverger, will vote in favour unless there is a better offer before then.
The agreement includes “no shop” and “no talk” restrictions preventing Diverger from negotiating rival bids, as well as giving Count the right to match any other bid.