AZ NGA CEO on the ripe M&A landscape for financial advice

AZ NGA merger M&A paraplanning

17 October 2023
| By Jasmine Siljic |
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AZ Next Generation Advisory’s (AZ NGA) chief executive Paul Barrett has outlined the firm’s plans to become Australia’s leading professional services company.

Since 2015, the financial advisory group has completed 130 M&A transactions. This year alone, the firm executed 14 transactions: 10 by its member firms and four by AZ NGA directly. By year end, the company could reach 18 transactions, Barrett expects.

Deals this year include the firm’s stake in Perth advice firm The Wealth Designers (TWD), its stake in Sydney-based financial advice firm Foster Raffan iPlan and its strategic partnership with Rose Partners, a Melbourne-based accounting and advisory business.

The chief executive expects the firm to quadruple in size over the next three to five years to create Australia’s leading professional services company, predominantly in the wealth sector. 

“We want to stand up as a large, sustainable player in the sector here in Australia and provide quality, profitable services to these thousands of small and medium-sized enterprises (SMEs) that had their tethers to the banks broken,” he told Money Management. 

Barrett also hinted at the possibility of becoming ASX-listed on the long-term horizon.

“Do we talk about listing the company? Yeah, we do. We talk about that, but we talk about all options as anyone in our situation would,” Barrett said. 

While there is currently no specific date set for listing, AZ NGA remains open to all options.

“Whatever we decide to do in the future, it will be a means to an end to give us more options. That’s how we think about it,” the CEO shared. 

Changes in the M&A landscape

Having completed plenty of deals in his career, Barrett is well-placed to identify how the M&A landscape has changed since he founded the firm in 2015 after managing ANZ’s global advice arm.

Nine years ago, Barrett observed a significant gap in the wealth management market. Backed by Azimut Group, one of Europe’s largest independent financial services companies, the partnership enabled them to solve two of the largest issues plaguing the advice industry: succession and growth.

“It took a capital supplier from Milan to partner with a wealth management executive in Australia to solve this very Australian problem. By anyone’s measure, that is an unusual set of circumstances,” he said.

While investing in advice firms was seen as contrarian and a highly risky investment at the time, the chief executive said he always remains confident.

“People used to stop me in the street and say, ‘What are you doing? Why would you do that?’

“To me, it was always obvious that investing in advice was a great idea, because these were quality firms with good profit margins. [Advisers] were way closer to the client than product manufacturers were.”

In 2023, however, he said he has noted a change in M&A behaviour, describing it as a slightly slower year for direct transactions. Instead, more acquisitions have taken place by AZ NGA’s member firms seeking out their own deals.

“We’re now shifting our capital supply to our firms. We’re trying to give our firms that we’ve invested in more access to our capital and our debt solutions to enable them to do M&A.”

This enables AZ NGA’s firms which it invests in to multiply in size, ultimately expanding its overarching advice footprint across Australia. Barrett described this internal approach as the “super firm” strategy.

“That doesn’t mean we won’t buy firms directly. We absolutely will and we’re looking for quality firms to do that with, but we’ll never be able to keep up with the insatiable appetite of our firms as a community when it comes to M&A.”

The CEO projected the increasing emergence of these super-sized advice firms, while smaller family-run businesses will eventually fade out. 

However, he warned the positive environment and “window of opportunity” for M&A in the financial advice space won’t be open forever. 

“There’s never been a time in the financial planning industry’s history like now. I doubt there will be in my lifetime again,” he recognised.

“Right now, there’s this arrival of new capital into the financial planning market in Australia. We played a significant role in validating that, and now there’s other players coming in. But that window of opportunity won’t be open forever. Financial planners who want to take advantage of this capital influx need to do it now.”

Horizontal integration

Rather than the approach of vertical integration, another way that AZ NGA differentiates itself is via a strategy of horizontal integration where it seeks to be involved in all the critical components of the advice supply chain. 

“It’s a different way of thinking about how to build an organisation. Rather than going to hire people and build your typical corporate empire, we are using capex not opex. We’re using capital expenditure to acquire capability and bring it in, and it’s awesome because it’s creating an entrepreneurial culture and an invaluable asset.”

Both AZ NGA’s due diligence and accounting divisions were created through buying an external firm, he said.

Last August, the firm made a co-investment with advice business InvestBlue in a Philippines-based paraplanning and back-office solutions provider Virtual Business Partners. 

“Virtual Business Partners is an incredible company that does a range of different things but essentially it’s a talent pool where we can access 1,250 staff in the Philippines. And we basically deploy those resources into our firms in a manner of different tasks.”

Next on the horizon is the acquisition of an HR firm, which Barrett says is “pretty close” to being finalised.

“What we find is SMEs are pretty light when it comes to HR so we want to give them an outsourced solution so we’re acquiring an HR capability to do exactly that.

“We’re doing this for strategic reasons, because of the size we are, we’ve now got over 2,000 employees, so HR becomes a major requirement. The old school way of thinking about this would be to say, ‘Okay, let’s go to market and hire a head of HR and build an HR team’ and all you do is create this big, clunky bureaucracy that’s expensive.

“What we’re doing here is buying a profitable going concern that has all of the capability and people that we would otherwise need to hire. So it’s a win-win; we get the capability and we get a valuable asset that’s creating revenue, profits and dividends.

“This HR [deal] is an example of [horizontal integration]. We’ve got some other irons in the fire too,” he hinted.

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