AZ NGA, the advice and accounting practice aggregation venture founded a decade ago by Paul Barrett, is now valued at around $700 million following a major capital injection from a famed US investor.
In what Barrett tells Professional Planner is a major vote of confidence in the health and the future of the Australian financial advice profession, Oaktree Capital will commit to invest $240 million in AZ NGA and become the largest shareholder in the business.
“Entrepreneurs around the world can invest anywhere they want,” Barrett says.
“They can invest in service software service companies. They can invest in social media companies. They can invest in any number of things. They’ve chosen to invest in Australian financial services.”
Barrett, a former general manager of the then-Commonwealth Bank-owned Financial Wisdom licensee and later a general manager of advice for Colonial First State, established AZ NGA in 2014 with the aim of buying into leading Australian financial advice firms.
It was one of the first aggregators to understand the shift in the structure of the advice industry would play directly into the hands of financial advice businesses, at the expense of product manufacturers and some licensees. Critically, AZ NGA avoided becoming a licensee itself.
Barrett realised before many others that advice and accounting practices with access to adequate patient capital and a strategic business partner would be well placed to capitalise on the mass exit of banks from the advice space, the declining supply of advice capacity and the increasing demand for advice services.
“I’ve been on a mission for 10 years to ensure that our sector is seen as a valuable sector and that has a meaningful contribution to make,” Barrett says.
“We’re a strong sector, and it’s great to see the momentum, not just within our business, but within the sector more broadly that we’ve been observing for the past few months.”
The Oaktree investment will allow AZ NGA’s original backer, Italian bank and asset manager Azimut, to realise some of its investment in the Australian business. Azimut has reinvested all dividends received from its holding in AZ NGA for the past 10 years.
Barrett says the injection of new capital will provide both liquidity for existing AZ NGA shareholders, and funding for continued expansion. The transaction will also allow some of AZ NGA’s partner firms to sell into the deal.
The percentage of the AZ NGA business ultimately owned by Oaktree, the firm co-founded and co-chaired by Howard Marks, will depend on how much various parties sell into the transaction, Barrett says, but will be somewhere between 30 and 40 per cent. He said the shareholder agreement with Azimut provides that the bank will never own less than 25 per cent of AZ NGA.
“They’ll take the opportunity to take a return on their investment now,” Barrett says.
“But they have committed for the long term. This is really important. Azimut’s shareholding will not fall below 25 per cent, and that is that is agreed in our shareholder arrangements.
“They will contribute pro rata as we invest into the future. They want to be part of this, this company, and in its prospects for many, many years to come. They’re not selling out.”
“Entrepreneurs around the world can invest anywhere they want,” Barrett says.
“They can invest in service software service companies. They can invest in social media companies. They can invest in any number of things. They’ve chosen to invest in Australian financial services.”
AZ NGA has grown to have a network of 34 partner financial advice and accounting firms from its initial investments in Greg Cook’s Eureka Whittaker Macnaught and Brett Schatto’s Pride Advice – and both firms remain withing the group today.
It will take on equity stakes in a further 16 firms later this year when a deal with AMP concludes for AZ NGA to acquire AMP’s equity parentships business for $82.2 million, part of a bigger deal that will also see AMP’s advice licensee businesses move across to Entireti (formerly Fortnum) in a $10 million deal.
AZ NGA engaged Michael Stock, chief executive of investment bank Jefferies Australia, in February this year to advise on securing a strategic investment partner “to supply capital for growth and to create liquidity”, Barrett says.
The model established by AZ NGA has been replicated since its launch and it is now also an established growth strategy for licensees to invest in the businesses whose advisers they also authorise, to share in the profitability of delivering advice services to clients.
But in 2014 “we took a big risk”. Barrett says.
“No one was doing this. What Shadforth did was pre-Hayne [royal commission], and it was a different business model.
“We’re the first aggregator of substance in the professional era, and that’s what makes us so special because our revenues and profits are advice [fees], they’re professional services fees.”
