Three WT Financial Group-licensed practices will merge with capital backing from the new joint venture with Merchant Capital Partners.
WT had announced the “Investco” joint venture with Merchant, the Australian subsidiary of New York-based financial advice investor, earlier this week to help take equity stakes in practices in its network.
In an announcement to the ASX on Friday morning, WT revealed the joint venture has already executed a heads of agreement to merge
Titan Financial Planning, Darwin Financial & Recruitment Services, and Wealth Connect Financial Services.
The three practices are respectively licensed by Millennium3, Sentry Advice and Wealth Today, which are all owned by WT.
The three practices will sell its shares into the new entity, under the working title “Hubco1”.
WT Financial Group will hold approximately 6 per cent of the practice’s shares “to reflect its advisory and due diligence services contribution”. Investco is expected to provide an initial $3.5 million and will hold an approximate 36 per cent stake.
Titan principal David McLean will be appointed as chief executive. Darwin FS director Andrew Moo and Wealth Connect financial adviser Jeff Stella will be active advisers providing regional and specialist expertise.
Capital will also be applied to retire any existing debt and completion of the transaction is expected to be by the end of May.
The first Hubco integrates three advice practices into one structure, launching the start of WT’s strategy to help the merging practices scale up while “preserving their entrepreneurial independence”.
‘Respect for each other’
WT founder and CEO Keith Cullen tells Professional Planner a key element of merging practices is being confident they can work together.
“They’ve got a great deal of respect for each other’s professional capacities,” he says of the three practices.
“David [McLean] and Leasa, David’s wife, have done a fantastic job with the administration in their business as they built a really robust front end and back-end administration model. They’ve used outsourcing, they’ve built all the processes into it.
“Both Andrew [Moo] and Jeff [Stella] have looked at that and said, our practices can really benefit from plugging into that.”
Cullen said McLean has “youthful enthusiasm” which works in tune with the experience of Moo and Stella, who are setting themselves up for retirement.
As WT has a variable fee model based on practice revenue or profit, the more the licensee helps practices grow, the more it benefits financially.
Because of this, Cullen says the consolidation of the three practices has no immediate impact on WT’s fee arrangements with each one.
“We’ve put them in a position to be able to grow their revenue and we definitely think that, ultimately, we’ll benefit from that growth,” Cullen says.
‘A powerful combination’
When the joint venture with Merchant was announced, Cullen described it as “a powerful combination”.
“The practices that we think will form our first investments fit into those two camps is on the merger side, as we’re looking at bringing together a combination of younger, enthusiastic entrepreneurs.”
As somewhat expected, WT and Merchant’s first investment is a merger of three advice practices as one single, scalable entity.
Cullen said WT’s knowledge of their practices allows them to form the best combinations, should they be looking for a suitable merger.
“We can help [principals] with that in terms of doing the matchmaking, because we know these practices really well, so we have a really good sense of which businesses might fit together well.
“We live and breathe that with our practices every day, we know which practices will fit well together and which will fit better somewhere else, if that’s what they want to do.”
WT and Merchant’s joint venture is a transition for the licensee to full capital partner after years of promoting “quasi-equity” with a variable licensee fee structure.
This follows licensees like Count and Centrepoint pursuing the option of equity stakes to create further value outside of fees.
Last month, Oreana announced a partnership with advice consultancy Encore Advisory Group to boost its equity stake capabilities.
