This is part 2 of Conversations at the Coalface with Dean Tavener of Lifestyle Financial Services. In this episode, we have a number of helpful tips and insights for sellers as we take a deeper look into the whole integration process post completion – the issues encountered, lessons learned and a lot more!
01:05 Nobody Wants To Buy Into A Mess
05:31 Buying Shares Versus Buying The Business
10:27 Cultural Change Will Always Take Time
13:25 Clarify The Arrangement With All Affected Parties
19:23 The Crux Of The Whole Strategy
21:05 Lessons Learnt From These Integrations
23:39 Tips for Sellers
28:38 Quick Recap
31:35 Let’s Wrap Up
Today’s episode is part two of our exciting two-part series with Dean Tavener from Lifestyle Financial Services. Dean is our very first guest for our newest segment called “Conversations At The Coalface” – where I talk to people who working at the coalface of organisations that are buying or selling to get perspectives from the ground up. We have a number of helpful tips and insights for our sellers out there as we take a deeper look into the whole integration process post completion. So, let’s dive right in!
Nobody Wants To Buy Into A Mess
Joanna: Hi Dean! You talked about profitability. You talked about cultural fit both in staff and the overall culture of the organisation. And you talked about needing to be able to see some upside so some untapped potential that hasn’t been exhausted in the organisation itself. Anything else in particular that you’re looking for in your targets?
Dean: So it’s really good in a potential acquisition option if the quality of the information and the data that they have around the clients and the services they provide is neat and organised, basically, to put it in really simple terms. So if the overall process of integrating the businesses doesn’t have to work around piles of paperwork stacked in archive boxes and it’s all sort of more easily accessible and organised, that is a surprising headache saver.
Well, not surprising that it saves you a bit of headache. But I think it’s surprising how much headache sometimes because there’s obviously a lot of detail especially if both companies have been running for decades or whatever timeframe you’re talking about. It’s obviously a lot of information behind all that. And the more information that you can actually absorb and utilise the better I think.
It’s not great to take on 10 years’ worth of another business’ information put it in a box and never look at it because no one’s getting any value out of that – not us as the purchaser, not the consumers or the clients who may have provided information or formed relationship with this business that was then basically just put in a box for whatever reason because it can be an easy way to absorb that information into our systems. I think that’s a completely unideal situation. So just ease of integration of the basics is really helpful.
Joanna: I think this is a really good point that you’re making because this is actually a point that perhaps is not made as often as some of the other points in relation to what organisations should do to get themselves ready for a sale. But certainly getting critical information that will be important to the buyer.
In your case, and I guess perhaps most buyers cases, it will be the way that they’ve structured the client databases and all of the critical information in the business in a way that is easily accessible and searchable and integratable as well. I think that’s a really good point and just to clarify this is something that you go through your DD process and look at. Do you look at this before you agree on a price or is it a bit of an afterthought when you’re going in and looking for your target?
Dean: No, this is definitely moved more to the front of the checklist. So there is a bit of a checklist around this for us now that we’ve developed basically through experience. So it didn’t start off that way but we learn from mistakes. And yeah, we do have a bit of a checklist now about the quality of the client database and all that sort of stuff as you just summarised really nicely. And that has moved up in the timeline of the acquisition process.
Before price is agreed and everything is signed off we want to have some understanding of what all of that architecture and infrastructure looks like because it can create some very large costs potentially to us in integrating the businesses so we need to take that into account before paying for the asset.
Joanna: Okay, well I’m going to call these Dean’s hot tip here.
If you’re a business that’s looking to acquire another business maybe this is something that is at the end of your checklist that you should be bringing further forward before you’re agreeing on price. And if you’re a business that is looking to build itself ready for sale, once again this is something that you should have in your important checklist to get yourself sorted well before going on the market because it’s obviously a time consuming exercise. If a business has not got this stuff organised, getting it organised. And I hear your pain Dean, I hear you saying you want it to be them rather than you having to do all of that organisation before the sale process kicks off, right?
Dean: Yeah, to put it bluntly. Absolutely.
Buying Shares Versus Buying The Business
Joanna: Okay great. As a quick overview what’s the size of financial plan businesses that you’re buying or the range of sizes I guess?
Dean: It’s been a pretty big range so I’m guessing that we’re going to be talking about size in terms of revenues of the business. We’ve gone from definitely pretty small, so around 100,000 or 200,000 per year and there we’re just talking about buying a portion of the client books, not the entire business. So that would be the smaller end the transactions that we’ve done. And then up to around sort of one and a half million revenue per annum businesses.
Joanna: Alright. Great. So earlier on you mentioned, you touched on the fact that sometimes you’re buying the businesses or the assets and sometimes you’re buying the whole company i.e. the shares of the company. So maybe if you can just give us a quick outline when you’re buying the shares at the company, why are you buying the shares? What’s the benefit to you in that purchase as opposed to the business out of the company?
Dean: When we bought sort of the whole package either the whole business or with the share arrangement (actually I should be clear that we’ve only in the ended up doing that once to date, at least that I know of), it creates some ease of operations for us in that we can keep that business running as is and quite slowly go through whatever changes or integrations, amalgamations that we need to make in the way that they do things or whether clients sit and so on. So it essentially buys us time because we can buy in and then leave things running as is until we’ve got the capacity, until we’ve checked everything that we need to check and we know we’re ready to move on whatever particular part of the integration project we’re looking at.
Whereas we’ve found that if we purchased the bare minimum, which for us in this industry is just purchasing the book of clients, then we’re under certain timeframes. We have to issue letters to certain people and basically integrate the clients into our way of doing things with set levels of notice and sign off from multiple parties within certain timeframes. So it just makes it potentially a lot more rushed.
In the end I think the final destination for both purchase types is the same in that I can’t see too much benefit at least in the businesses we’ve looked at so far of operating them completely separately. There’s obvious synergies to be gained from amalgamating. So it’s just a matter of how rushed that ends up being. The reason therefore not to purchase more comprehensively or buy the shares has come down to that. We’re only purchasing for instance a portion of the client book. There’s an obvious reason or potential skeletons in the closet.
So if the due diligence comes up with any kind of question marks over anything, it’s safer for us to scale down the complexity of what we buy and we can still make the same transaction and then we just need to implement a bit faster.
Joanna: Yeah. Okay. So this is a really good point because there’s this common debate that goes around in the sort of business sizes that you’re talking about that are your targets and the deal sizes that this concept of buying the business rather than the shares themselves and it has an implication for owners right in beginning in relation to how they structure their businesses as well. But it’s really interesting that I hear you say that because there’s this philosophy that it can be harder sometimes to deal sizes of this size to have a buyer agree to buy their shares as opposed to just the assets and the business without the shares as a whole and the skeletons in the cupboard as you say.
But it’s interesting to hear you talk about some of these actual practical benefits of buying the shares themselves as long as you can then satisfy yourself that through your due diligence that there’s not likely to be or that there’s a lesser risk of there being skeletons in the closet of these businesses.
So it’s interesting to hear you talk about the practical aspects of the ability of buying a company as a whole giving you the time and the space to integrate it at your leisure as opposed to buying the business which requires all of the transition to happen pretty much exactly starting from the date of completion. Right? That’s it. You’ve got your time. Your clock’s starting now. You have to get it all transitioned as quickly as possible, when you’re going for the alternative, which is buying the business or the assets themselves.
Cultural Change Will Always Take Time
Joanna: Good. Okay. All right. So maybe if you could give us a little insight perhaps into what issues have you seen that has arisen as part of the component that you’ve been involved in acquisitions?
Dean: Sure. Definitely I think the main one with the larger acquisitions has been the culture fit which I know i already talked about so we’ll keep it pretty brief. But making sure that there’s a good culture fit and that cultural change is pushed. It needs to happen.
If you can see the business you bought and your existing business and know which culture you want to be the culture of the company, then pushing the staff of whichever culture you’re trying to change slowly but consistently I think has been the biggest challenge. And having spoken to a couple of culture change experts on this, there is no golden arrow so to speak that will sort this out.
It’s an average of a 24-month process to get proper cultural change and cultural alignment in an acquisition phase at least according to one of the people I spoke to whose name I wish I could remember but I can’t right now. And that pretty much aligns with what we’ve seen in one of the businesses where we’ve brought on some staff.
It’s been a slow but good process. I mean we’re getting the outcomes that we’re looking for and I think the staff are happy on both sides of the fence, both in the purchased business and the existing business we held which has been really good. But I just think that it’s important to go into that kind of situation with the idea that “Hey, this will take a while.” This will take probably anywhere between I’d say 12 and 36 months so I don’t think you could get proper cultural change in under 12 months unless you’re a wizard.
Joanna: So the issue here is that essentially whatever business it is, it will take time for this cultural change to occur. Do you feel that you’ve lost staff because of approaches to this at some points or is it just that it is a long process?
Dean: I think more that it’s a long process. I don’t think I could say there was loss. I mean we haven’t really lost any staff due to cultural changes I believe. There’s definitely not been any really quick or sudden turnover which has been good, thankfully.
Yeah I think it’s just to be aware that it’s a slow process and that you’re not necessarily going to get the best co-operative work out of a team for a while down the track and that there will be a bit of time for each other. If you’re lucky enough to have a separate HR department. So yeah a bit of extra time and just kind of coaching people through the changes and managing that process.
Clarify The Arrangement With All Affected Parties
Joanna: Okay great. Alright so culture fit, that was one of the issues. Have there been any other issues in integration?
Dean: The other main one that comes to mind is one I think I hinted at earlier of. Actually when we were talking about the sellers kind of coming on board to help affect the change, a challenge for us has been getting the message in that cooperation correct and clear. So the message to suppliers, the message to other contractors, to the staff, but most importantly to the clients about what is happening and what everyone’s role is going forward. And that’s been a recurring theme.
The role-thing especially, so who does what and what is happening. Is it an acquisition? Is it a co-operative arrangement? Have they sold to us? Have they merged with us? Have they partnered with us?
I think the wording of these things could potentially be easy to overlook. But if you do sort of brush past it and one party is thinking that it’s a partnership and the other party is thinking it’s a takeover, I think that tends to come out in the communication that goes out a little later down the track and especially if that goes to clients and the wrong perception of the whole arrangement is created that can be hard to unwind.
Joanna: How do you deal with that now then? Is this something that you have a clearer approach now on discussing right upfront before completion? How are you going to deal with communication? Or is that something that you’re dealing with still post completion?
Dean: No, that’s definitely brought into the fold before completion of the deal because it can have such a big impact for such a (what could be seen as) such a minor thing. So having at least some discussion about what the communication will look like and what the phrasing of the overall deal is going to be, even just in an informal circumstance to external players. That’s definitely something that we discuss as part of the deal making process at this stage and then essentially just revisit it.
The general attitude that more communication is better seems to apply. So just constantly sort of revisiting them with the buyer, with the seller and talking about how the communications with clients are going, how the handover is going and what those conversations actually look like so what words are being used and what reactions are coming out of it and just keeping that as an ongoing process over as I said roughly 12 months that we seem to be settling on for a transition and handover period.
Let’s Take A Break
Let’s take a short break. When we get back, I ask Dean about the returns enjoyed by Lifestyle Financial Services from having this acquisition focus and we get a little personal by asking Dean about the lessons he’s learned from all the integrations he worked on. And finally, we’ll close this two-part series with some helpful tips for all our sellers out there.
And that’s next! This is Joanna Oakey, and you’ve been listening to The Deal Room – a podcast brought to you by Aspect Legal.
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Welcome back! Earlier Dean talked to us about the other things that they consider when seeking an acquisition target. He also had a lot of interesting things to say about the strategy that’s behind the decision to buy shares versus buying the business, as well as the issues that he has seen come up during the integration phase. So let’s keep the conversation going and dive into the benefits of using acquisition as a growth strategy.
The Crux Of The Whole Strategy
Joanna: What returns then has that organisation seen so far from these acquisitions?
Dean: There’s the obvious financial returns so your revenue and EBID have gone up. Operating profit has gone up which is great obviously. It’s arguably the whole point half the time.
But some of the softer benefits I think include the scale that we’re getting and the things that come along with scale. So we’re able to enact better deals outside of the acquisition space as well, simply by the size that we’re gathering in the industry.
We can have a different kind of conversation with suppliers and just with other entities that we work with because we’ve got more clout I suppose, more customers to use in those conversations as a bargaining chip to put it in a really cut throat way.
But for the benefit of our staff and our clients, we can get better deals on things and we can look at technologies and services that are out of price range for smaller organisations and basically don’t make sense with a smaller number of clients. So we’re looking at some scaled systems that hopefully will deliver services that our clients really like that just wouldn’t have been possible at a smaller scale. So that’s kind of the crux of the whole strategy really is to open up extra opportunities by getting that scale.
Lessons Learnt From These Integrations
Joanna: Okay great. That’s fabulous. And I guess on a personal note what do you feel like you’ve learnt in all of these integrations I guess that you’ve been working on?
Dean: Oh wow. A lot. Yeah a lot. I maybe even don’t know where to begin. I think I’ve learnt a lot about people and how to have these conversations, how to be really genuine as well because that’s what shines through in all these talks and the implementation and there’s a lot of working with other people to make things happen and it becomes obvious who’s genuine and who’s looking out for their business, their staff and their clients and who’s just kind of looking at the bottom line and not much else.
Joanna: Wow. Isn’t that fascinating? Okay.
Dean: Yeah. And it starts to really shine through and I think the genuine people or the people here can have a sort of more genuine broader scope conversation with those relationships are easier to work with and the results speak for themselves in the long run. I mean I think I could probably go on for a while about what I’ve learnt although there’s the dilemma of choice. There’s so much there. It’s been an amazing experience getting involved right at the start of this pretty rapid acquisition growth phase.
Joanna: Yeah. Right. I think probably a lot of people that are listening into this podcast are listening in because they’re interested and they’re involved in some way in this area of sales and acquisitions and this is why I love the area too because I feel like it’s a high energy environment and mostly dealing with parties on both sides where all of the parties are aligned for the same reason and to the same outcome, which is to get a successful deal across the line in a way where everyone ends up happy.
This is, particularly as a lawyer, you can’t always say that for all areas of law. So it’s a reason why I love it and certainly I can hear in the things that you’ve been talking about today that you’ve found this area an interesting and exciting sort of area to be involved in.
Dean: Yeah very much and I completely agree. It’s an area where you’re working on a win-win-win situation. The clients should come out better, the seller and the buyer should both be happy. So what’s not to love?
Tips for Sellers
Joanna: Yeah. Absolutely. Okay so to wrap it up then I guess let’s get really practical. If we have any financial planning businesses here that are looking to sell I guess you can probably talk very authoritatively as a buyer, what is it that you recommend? What are the tips for financial planning businesses that are looking to sell? And maybe some of these tips probably are applicable to businesses as a whole that are looking to sell, but let’s stick to your space. What tips do you have for these sorts of businesses?
Dean: Okay. So tips for sellers, I’m thinking firstly make sure that what you’ve got is organised. No one wants to buy into a mess. And I mean that at both a pretty base level and a higher broader scope level. Even as simple as if you’re going to have a meeting in your offices, if someone walks in and it’s a total mess of paperwork everywhere that’s not a great first impression for something that you might be buying into.
But yeah getting down drilling with that theme specifically to financial planning, making sure that you’ve got clear records of all your compliance obligations and if they’ve been met, when they’ve been met, records of all your communications with your client, all that sort of stuff just goes to show that you’ve got a hand on what’s happening. You’ve got good control over your business and your processes and that it’s not going to be buying into such a fixer upper basically.
Dean: And then making sure that whoever you talk to if you’re looking to sell, you can work with because I don’t think either party will benefit if you end up doing a deal and then walk away and sort of touch your hands and consider it done.
I think there needs for that cultural and personal alignment a similar set of attitudes and values and that you can work together for a while to make sure they both get the utmost possible good value for the buyer, the seller and the clients out of the transaction. It’s a medium to long term player. I just don’t think it works as well as a short term game.
Joanna: I love that point, Dean. I really like that point because I think sometimes what happens is that organisations don’t think properly about selling until the point where really they’re already emotionally out of the door already. And I guess the message here that we’re hearing from you is if you leave it that late then maybe your options of buyer or the amount that you’re likely to get for your business are going to be impacted. Because in your view at least in relation to the acquisitions that you guys are doing over there at Lifestyle Financial Services, you’re looking for people to give it a little bit of time and to do a proper handover and transition. And I think you’ve thrown about the time period of that minimum of a year. You want people to be there and not just there but on board with you emotionally as well, to help transition properly.
Dean: Yeah absolutely.
Joanna: Super good points there Dean. I just want to say a massive thank you for your time. It’s been really interesting hearing you speak about the integration issues really at the coalface because that’s where you’re sitting. And as an advisor, quite often we’re deeply involved in leading up to the point of exchange and then completion. But it’s you guys who are working on the integration I guess that prove it doesn’t all finish when completion happens. Indeed, in your experience it probably really is only just starting once completion happens. So there’s a whole hell of a lot more to do after completion to make sure it’s a properly integrated whole.
Joanna: Okay. Thank you so much for your time and look I guess maybe it’s worth saying then you’re on the lookout for more acquisitions so I guess if any of our listeners here have good financial planning businesses that fit some of that criteria of what you’re looking for in a target. You’re probably out there looking, is that right?
Dean: Yeah, definitely open to any opportunities that are going to fit that win win goal that we’re looking at.
Joanna: Great. Okay. How should they contact you then Dean? We can definitely put some links through from our show notes on our website thedealroompodcast.com and we’ll have a link right through to Dean there. But Dean also let us know how they can contact you directly if they don’t want to go through our website.
Dean: Yeah. Perfect. Best way is probably just to get me via email. So that’s dean at yourlifestyle dot com dot au and you can just google us as well. It’s Lifestyle Financial Services and we’re based in Chatswood in Sydney.
Joanna: Fabulous. Wonderful. Okay. Well once again thank you so much Dean. And we hope to talk again soon.
Dean:Yeah, great. Thanks! I’d love to do it again. Thanks very much.
Joanna: Just as a quick recap, Dean talked about the sorts of things that they look for in their targets which I don’t think really are confined just to the financial services industry and his example. He is talking about profitable organisations, having a cultural fit for staff and overall culture, having some upside still there. I thought that was a really interesting point from Dean. So here they were looking for a way that they could continue to add value not that those organisations where the value was already tapped out as much as possible and organisation and systems, I think that was a key issue.
Obviously, Dean had felt the pain of trying to integrate disorganised systems and information spread. So certainly for any of our listeners who were out there and preparing their businesses for sale, take heed because this is a way that maybe you can gear yourself up for a better sale price and a broader range of prospective buyers.
Then we had a brief discussion about earn outs and I thought that was a really interesting discussion because as I said during the discussion, earn outs can be a little bit controversial. So it’s great to hear some feedback from the coalface about how earn outs can really work beneficially for both parties.
Obviously Dean was talking there from the buyer perspective but he certainly made reference to the fact that they had actually made payments in these earn outs and he’d seen some of the cash going out the door. So for businesses who were concerned about the earn out component maybe that’s a useful bit of information to see that earn outs can and do get paid.
But obviously from a legal perspective it’s about making sure the detail is right and making sure you’re not signing up to an earn out if you’ve got no control over you receiving that earn out at the end of the day.
And of course from a legal perspective there are a lot of considerations with earn outs. You need to make sure not only that you’ve got control or some control about meeting the criteria for the earn out at the time that it becomes applicable but also that you have security for ensuring that it’s paid if something were to happen to the business or the business would it be transferred between the period of time that you complete and the earn out is payable. So there’s a lot to think about with earn outs but I thought Dean’s discussion here threw some good light on to how it can work in the positive when everyone’s working together.
And the final issue that I wanted to talk about here today that I thought was particularly interesting from the things Dean was talking about was the question of structure. I thought it was really interesting that Dean had found in his position as dealing with the integrations at least that acquiring the shares of a company actually made it easier in the acquisition process than acquiring the business or acquiring the assets.
Let’s Wrap Up
I think this is an important thing for businesses to bear in mind if they’re gearing themselves up for a sale into the future or indeed making that difficult decision right at the beginning of setting up a business as to whether or not they’re going to adopt a company’s structure or trust structure – if they’re a smaller business and might be thinking of operating through a trust structure. Because sometimes there might be reasons why a buyer will find you more attractive in a share sale. But if you think you’re going to sell the shares of your organisation rather than just the assets at any point in time, as Dean says you better be sure that you have got a fairly tight ship when it comes to due diligence and you certainly don’t want to be leaving it up to the point of due diligence for surprises to appear because in the instance of Dean finding these surprises through the acquisitions that he worked on, it then led their organisation to change the strategy from a share purchase to a business or asset purchase.
So if you work with businesses where it’s going to be better for them to sell the shares then we really need to ensure that these businesses are properly primed for sale and properly primed for the full due diligence process that they are likely to be going through. So it really means once again that it’s extremely important to get these businesses sale ready early rather than late obviously.
Okay great. Well if you would like more information about this topic head over to our website where you can find a transcript of this podcast episode and you’ll also be able to find a way to contact Dean Tavener directly if you are or of a financial planning business that’s looking to sell.
Look Dean was such a great sport on this podcast, that if you’re a business that’s involved in acquisitions, he might even be willing to catch up for a quick coffee one day and talk about his experiences in integrating these businesses post completion.
So head over to our website at thedealroompodcast.com and there you’ll also find details of how to contact our lawyers at Aspect Legal if you or your clients would like to discuss any legal aspects of sales or acquisitions.
We’ve got a number of great services that help businesses prepare for a sale or acquisition or help them through the transaction process. And as we discussed today preparation is critical.
We work with clients both big and small so don’t hesitate to book an appointment if you’d like to find out how we may be able to assist. Finally if you enjoyed what you heard today please pop over to iTunes and leave us a review, I’d be ever so grateful. And if you have any topics that you would like us to cover on this podcast, please just drop me a note through our website at thedealroompodcast.com or through our legal website at aspectlegal.com.au.
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