Presented by Scott Monotti Executive Director

Transcription

1 Presented by Scott Monotti Executive Director

2 Calculating a Business Multiple Capitalisation of profit methodology, valuing business &/or the entity that owns the business Risk and Value Driver Assessment Use an algorithm to scientifically determine the profit multiple/cap rate Business must generate sufficient profits after tax to return total funds to the owner/investor over a defined period of time (risk profile) Consistent with Tax Office SME valuation guidelines: Prudential methodology, validate value to benchmarking information Meets requirements of APES 225 & 305

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11 Activity: Business Risk Survey

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14 Case Study A Financial Planning / Digital Marketing

15 Business Profile The Business has the following profile: 7 years young 470 clients, of which 85 are insurance only $690,000 recurring revenue excluding GST $144,000 recurring revenue from Insurance to begin being paid 2018 $80,000 recurring revenue for financial planning fees to commence $72,000,000 Funds Under Management

16 Funds Under Advice DEC 17 DEC 16 DEC 15 $72,157,000 $51,167,000 $32,481,000

17 Top Fund Managers Name FUM 1.CARE $52,259, Vanguard $13,000, Winton $2,000, Optimix $2,400,000

18 Financials FY18 FY17 FY16 FY15 Gross Revenue 1,801,333 1,478,347 1,064, ,518 Recurring Revenue 960, , , ,000 Expenses 939,124 1,162, , ,056 EBIT $582, , ,485 65,263

19 Client Age Segmentation Age Band No % TOTAL % 18-55

20 Financials List of Key Expenses Amount Wages $606,505 Superannuation $58,290 Occupancy lease $48,400 Advertising and Promotions $47,421 Marketing $16,101

21 Key Strengths A unique marketing proposition to a defined niche market. Inhouse marketing specialists. Fixed Fee structure ensuring financial performance irrespective of economic or market conditions. Segmented service offer. Excellent revenue and profit growth 15/16 52%, 16/17 38%, 17/ %. Excellent FUM growth 15/16 57%, 16/17 41%. Use of inhouse asset management, effectively outsourcing is best practice. New generation platforms used to provide Multiple referral partners. Excellent Management and reporting structures. Tailored dashboard. Service offer and pricing is competitive. Good client segmentation target market. Active marketing. Excellent age segmentation illustrates good cross section without overexposure to one particular sector. Good average FUM per client $187,420 given age demographics given age demographics. efficiencies and enhanced client experience.

22 Key Strengths Good average FUM per client ($187,420 given age demographics) given age demographics. Excellent new business generation in a difficult market, illustrating best practice marketing. Youth of owners and team. FOFA compliant. Excellent compliance history. Quality, skill and expertise of advisers. No over exposure to key clients. Profitable, standalone business.

23 Key Weaknesses There are no external advisers/consultants being accessed. There is some key person risk. The high level of staff rotation experience may point to cultural issues. Many staff are inexperienced.

24 Recommendations Key person risk is evident but given the youth of the owners not overly prominent. The business should ensure the advice is corporatised i.e. that the advice is tendered by the group and not by an individual. The client should have multiple service relationships. We would recommend the use of an external consultant/s to assist in business management decisions to ensure freshness of ideas, maintenance or increase in management reporting and continued adoption of best practice.

25 Fair Market Valuation We would expect a multiple of 3.5 times to be applied to $690,000 Recurring Revenue or a market valuation range of $2,415,000. Adjusted EBIT allowing for partner remuneration is = $582,209 Adjusted EBIT $582,209 x 6 times multiple number = $3,493,254 There needs to be a viability check for any shareholder. A 30% shareholder would pay $1,047,976 and assuming it was financed at 8%, peak debt servicing would be $188,635 per annum and dividends would be $174,662 generating negative cash flow of ($13,973) or a gross return 16.67% and net after debt servicing (-3%) net return on investment plus deductable interest and future capital growth. This would be deemed acceptable given 3 year average growth of 37% and 21.85% last 12 months.

26 Case Study B Financial Planning Specialist

27 Business Profile The business has the following profile: 15 year business 97 Active Clients $1,250,000 plus of recurring revenue $80m Funds Under Management

28 Funds Under Management Y17 Y16 Y15 Y14 $80M $70M $60M $50M

29 Top Fund Managers Name FUM Hub24 $55m Asgard $23m Macquarie Bank CMA $2.5m Total $80m

30 Financials Gross Revenue 1,353,300 1,200,000 1,015,000 Recurring Revenue 1,250,000 1,000, ,000 Expenses 720, , ,000 EBIT 625, , ,000

31 Client Age Segmentation Age Band No. < % 22% 40 to to to < >60 56% >70 12 Corporate 2 Total 168

32 Key Strengths A unique value proposition to a desirable niche market. Use of new generation platform (HUB24) Fees based on project management primarily and not FUM based. Paid monthly and reviewed annually dependent on needs. Segmented service offer. Targeted markets. Good revenue (15%) and profit growth (13.5%). Tenure and retention of clients. Management and reporting structures excellent as evidenced by short turn- around of information request. Total income is high and sustainable. Service offer, and pricing is competitive. Access to recognised and respected experts of SCAT/Certainty Advice Group. Good client segmentation target market. Active marketing. Excellent age segmentation illustrates good cross section without overexposure to one particular sector. FOFA compliant. Excellent compliance history. Succession strategy is currently being explored. Quality, skill and expertise of advisers. No over exposure to key clients. Mainstream platform used. Active business and marketing plans. Profitable, standalone business. High touch service and competitive pricing for the client base. Experience and education of principals. Location reflects high demand of potential shareholders/buyers.

33 Key Weaknesses There is a significant decline in new clients (4) impacting new business generation. This has been due to capacity issues which have and are being addressed with additional personnel. There is significant key person risk however this is being addressed with the potential introduction of a shareholder/adviser.

34 Recommendations The move to an HUB24 will further enhance client service and potentially business profitability. Reduction of key person risk will be introduced into the business with the proposed introduction of equity partner/s. The business should ensure the advice is corporatised i.e. that the advice is tendered by the group and not by an individual. The client should have multiple service relationships. New client engagement needs to be elevated in importance, now the optimum infrastructure is in place. The targeted clients of young medico s will address the client overall age demographic make-up. We recognize that a recent initiative of Mortgage services will further decrease age demographics and introduce more risk revenue.

35 Fair Market Value We would expect a multiple of 3.25 times to be applied to $1,250,767 Recurring Revenue or a market valuation range of $4,064,992. Adjusted EBIT allowing for partner remuneration is = $625,356 Adjusted EBIT $625,356 x 6.25 times multiple number = $3,908,475 There needs to be a viability check for any shareholder. A 30% shareholder would pay $1,172,542 and assuming it was financed at 8%, peak debt servicing would be $211,057 per annum and dividends would be $187,607 generating negative cash flow of ($23,450) or a gross return 16% and net after debt servicing (-4%) net return on investment plus deductable interest and future capital growth. This would be deemed acceptable given growth average of 15% p.a.

36 Case Study C Best Practice

37 Business Profile The business has the following profile: Circa 92 clients (Fee for Service) $1,255,129 of Recurring Revenue $148 million Funds Under Management (fee for service) plus $9,000,000 in trail commissions for retail products $24 million in additional FUM, group super/individual accounts (predominately no fee MySuper)

38 Financials 2018 expected Gross Revenue $1,260,859 $1,273,000 $1,030,000 Recurring Revenue $1,185,368 $1,195,000 $969,685 Expenses $287,934 $278,000 $270,000 EBIT $972,925 $917,000 $699,685 2 principal salaries $360,000 AEBIT* $612,925 *Adjusted for commercial salary for each principal of $180k Notes: Revenue stagnated due to commissions terminating with the move of clients

39 Funds Under Management YTD Y16 Y15 Y14 $148,000,000 $133,967,084 $105,275,592 $80,182,834

40 Client Age Segmentation

41 Key Strengths High Net Worth clients, average FUM per client is $1.6m Segmented service offer. Good revenue and profit growth. Tenure and retention of clients. Management and reporting structures. Total income is high and sustainable. Very low infrastructure with outsourced paraplanning. Service offer and pricing is competitive. Access to recognised and respected external experts. Moving to MDA FOFA compliant. Excellent compliance history. Mainstream product providers being used. Succession strategy is currently being explored. Quality, skill and expertise of advisers. No over exposure to key clients. Mainstream platform used. Profitable, standalone business. Good client segmentation target market. Good age segmentation with only 14.5% of FUM exposed to over age 70 plus. Good new business generation reflective of engaged advocating client base.

42 Key Weakness Single Centre Of Influence referral relationship, though formal JV established. 22% of clients are over the age of 70 Fees are not fixed and are linked to underlying assets. There is no targeted marketing currently. There is no marketing plan. There is significant key person risk. Key person dependency is being addressed in this succession/equity strategy.

43 Recommendations We strongly endorse the use of external Consultants in regard to future pricing structures. Additionally, we believe fixed fee pricing increases the valuation of a business as it reduces exogenous market risks i.e revenue susceptible to economic and market downward movement. Segmented fee structure ensures client choice as to the subscribed service level they require on an annual basis. The move to an M.D.A will further enhance client service and potentially business profitability. Portfolio management needs to be carefully considered to ensure there are multiple filters on research and performance and can be replicated and not exposed to a key person or guru effect. Compliance is a key value determinate and you have a recognized service provider. The adoption of FinaMetrica will also reduce compliance risk with sophisticated risk profiling. Twenty two percent of your clients are aged over 70. Thought these clients only represent 14.5% of Funds Under Management. There is a mortality risk to revenue and profitability. They have engaged myprosperity and have started be rolling out a branded wealth portal and phone app to the client base. This is essentially a live data aggregation service which will be providing to clients as a new service offering. Currently developing a paid bookkeeping service where they offer cash flow assistance for clients and have begun pitching this as a paid service.

44 Fair Market Valuation We would expect a multiple of 3.2 times to be applied to $1,199,884 Recurring Revenue or a market valuation range of $3,839,628. Adjusted EBIT allowing for partner remuneration is = $612,925 Adjusted EBIT $625,356 x 6 times multiple number = $3,908,475 There needs to be a viability check for any shareholder. A 50% shareholder would pay $1,838,775 and assuming it was financed at 7% debt servicing over a 10- year Principal and Interest loan peak debt would be $312,591 per annum and dividends would be $306,462 generating negative cashflow of ($6,129) or (.3%) net return on investment before deductable interest and future capital growth.

45 2018 Netwealth AdviceTech Report - Alpha Group companion

46 Summary Goal is 40% EBIT to Gross Revenue 15% + Return on Investment Embrace change and technology

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49 Personal Journey in Planning March 1995 to December 2017 Succession Planning July 2008 to October 2018 Recipe for Success

50 Personal Journey In Planning March 1995 to July 1997 GIO Australia July 1997 to December 2017 Retireinvest Ballarat Very typical Pre/Post Retiree Practice, 3 Partners,Office Mgr & 2 Support Staff Recurring Fees $120,000 to $950,000 Organic Growth NO Acquisitions Adviser, Adviser with Minority Equity, Sole Director, Majority Equity Partner, Minority Equity Partner eventually 100% Exit 1992 to 2007 % Assets 2008 to Now Flat $$$ FFS Craig Partner commenced April 2002 Derek Partner commenced July 2007 ( GFC!!!! )

51 Succession Planning Start with your end game in mind How to Exit and retain Passive Equity??? July 2001 acquire 30% Equity January 2003 Snr Partner wants out ( unexpectedly ). Either Corporate Partner or bite the bullet ( Under BOLR 3 times ++ ) December 2003 Sole Director 100% Equity July 2008 sell down 49% to Craig ( Discount buy in for value added to Practice ), after 6 years with Practice. SWH 51% CPD 49% August 2015 Derek takes 30% equity after 7 years with Practice. SWH down 16% (retain 35%) Craig down 14% ( retain 35%) October 2016 decision to retire, inform Partners January 2017, December 2017 exit with passive equity retained

52 Succession Planning SWH TTR 2012 to ,4,3 eventually 2 days per week. Long term smooth transition of Adviser Service responsibility Cashflow Lending each step of the way Nab long term relationship Valuation Methodology Targets always being EBITD 40%, ROI 15% & 3 Times

53 Recipe for Success 1999 FPA Conference Bill Bachrach Always Turn Up Ready to Be No Place Else Really good people around you, different and better skills sets than you Pay yourself as Adviser first then Corporatise Practice with commercial outcomes Cashflow, Profit, Know the Numbers, Monthly Management Reporting, Budget to Actual Embrace Change, Adapt & Be Flexible Challenges along the way GFC 2008 % Assets Revenue down 20% Profit down 20%. Solution ALL take 20% pay cut from Directors to Staff. NO LOSS of Staff, ALL still here now 2008 % Assets to Flat $$$ FFS ( transition took 3 years ) 2016 World s Best Service ( You can always be better)

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57 Case Study A Financial Planning / Digital Marketing

58 Business Profile The Business has the following profile: 7 years young 470 clients, of which 85 are insurance only $690,000 recurring revenue excluding GST $144,000 recurring revenue from Insurance to begin being paid 2018 $80,000 recurring revenue for financial planning fees to commence $72,000,000 Funds Under Management

59 Funds Under Advice DEC 17 DEC 16 DEC 15 $72,157,000 $51,167,000 $32,481,000

60 Top Fund Managers Name FUM 1.CARE $52,259, Vanguard $13,000, Winton $2,000, Optimix $2,400,000

61 Financials FY18 FY17 FY16 FY15 Gross Revenue 1,801,333 1,478,347 1,064, ,518 Recurring Revenue 960, , , ,000 Expenses 939,124 1,162, , ,056 EBIT $582, , ,485 65,263

62 Client Age Segmentation Age Band No % TOTAL % 18-55

63 Financials List of Key Expenses Amount Wages $606,505 Superannuation $58,290 Occupancy lease $48,400 Advertising and Promotions $47,421 Marketing $16,101

64 Key Strengths A unique marketing proposition to a defined niche market. Inhouse marketing specialists. Fixed Fee structure ensuring financial performance irrespective of economic or market conditions. Segmented service offer. Excellent revenue and profit growth 15/16 52%, 16/17 38%, 17/ %. Excellent FUM growth 15/16 57%, 16/17 41%. Use of inhouse asset management, effectively outsourcing is best practice. New generation platforms used to provide Multiple referral partners. Excellent Management and reporting structures. Tailored dashboard. Service offer and pricing is competitive. Good client segmentation target market. Active marketing. Excellent age segmentation illustrates good cross section without overexposure to one particular sector. Good average FUM per client $187,420 given age demographics given age demographics. efficiencies and enhanced client experience.

65 Key Strengths Good average FUM per client ($187,420 given age demographics) given age demographics. Excellent new business generation in a difficult market, illustrating best practice marketing. Youth of owners and team. FOFA compliant. Excellent compliance history. Quality, skill and expertise of advisers. No over exposure to key clients. Profitable, standalone business.

66 Key Weaknesses There are no external advisers/consultants being accessed. There is some key person risk. The high level of staff rotation experience may point to cultural issues. Many staff are inexperienced.

67 Recommendations Key person risk is evident but given the youth of the owners not overly prominent. The business should ensure the advice is corporatised i.e. that the advice is tendered by the group and not by an individual. The client should have multiple service relationships. We would recommend the use of an external consultant/s to assist in business management decisions to ensure freshness of ideas, maintenance or increase in management reporting and continued adoption of best practice.

68 Fair Market Valuation We would expect a multiple of 3.5 times to be applied to $690,000 Recurring Revenue or a market valuation range of $2,415,000. Adjusted EBIT allowing for partner remuneration is = $582,209 Adjusted EBIT $582,209 x 6 times multiple number = $3,493,254 There needs to be a viability check for any shareholder. A 30% shareholder would pay $1,047,976 and assuming it was financed at 8%, peak debt servicing would be $188,635 per annum and dividends would be $174,662 generating negative cash flow of ($13,973) or a gross return 16.67% and net after debt servicing (-3%) net return on investment plus deductable interest and future capital growth. This would be deemed acceptable given 3 year average growth of 37% and 21.85% last 12 months.

69 Case Study B Financial Planning Specialist

70 Business Profile The business has the following profile: 15 year business 97 Active Clients $1,250,000 plus of recurring revenue $80m Funds Under Management

71 Funds Under Management Y17 Y16 Y15 Y14 $80M $70M $60M $50M

72 Top Fund Managers Name FUM Hub24 $55m Asgard $23m Macquarie Bank CMA $2.5m Total $80m

73 Financials Gross Revenue 1,353,300 1,200,000 1,015,000 Recurring Revenue 1,250,000 1,000, ,000 Expenses 720, , ,000 EBIT 625, , ,000

74 Client Age Segmentation Age Band No. < % 22% 40 to to to < >60 56% >70 12 Corporate 2 Total 168

75 Key Strengths A unique value proposition to a desirable niche market. Use of new generation platform (HUB24) Fees based on project management primarily and not FUM based. Paid monthly and reviewed annually dependent on needs. Segmented service offer. Targeted markets. Good revenue (15%) and profit growth (13.5%). Tenure and retention of clients. Management and reporting structures excellent as evidenced by short turn- around of information request. Total income is high and sustainable. Service offer, and pricing is competitive. Access to recognised and respected experts of SCAT/Certainty Advice Group. Good client segmentation target market. Active marketing. Excellent age segmentation illustrates good cross section without overexposure to one particular sector. FOFA compliant. Excellent compliance history. Succession strategy is currently being explored. Quality, skill and expertise of advisers. No over exposure to key clients. Mainstream platform used. Active business and marketing plans. Profitable, standalone business. High touch service and competitive pricing for the client base. Experience and education of principals. Location reflects high demand of potential shareholders/buyers.

76 Key Weaknesses There is a significant decline in new clients (4) impacting new business generation. This has been due to capacity issues which have and are being addressed with additional personnel. There is significant key person risk however this is being addressed with the potential introduction of a shareholder/adviser.

77 Recommendations The move to an HUB24 will further enhance client service and potentially business profitability. Reduction of key person risk will be introduced into the business with the proposed introduction of equity partner/s. The business should ensure the advice is corporatised i.e. that the advice is tendered by the group and not by an individual. The client should have multiple service relationships. New client engagement needs to be elevated in importance, now the optimum infrastructure is in place. The targeted clients of young medico s will address the client overall age demographic make-up. We recognize that a recent initiative of Mortgage services will further decrease age demographics and introduce more risk revenue.

78 Fair Market Value We would expect a multiple of 3.25 times to be applied to $1,250,767 Recurring Revenue or a market valuation range of $4,064,992. Adjusted EBIT allowing for partner remuneration is = $625,356 Adjusted EBIT $625,356 x 6.25 times multiple number = $3,908,475 There needs to be a viability check for any shareholder. A 30% shareholder would pay $1,172,542 and assuming it was financed at 8%, peak debt servicing would be $211,057 per annum and dividends would be $187,607 generating negative cash flow of ($23,450) or a gross return 16% and net after debt servicing (-4%) net return on investment plus deductable interest and future capital growth. This would be deemed acceptable given growth average of 15% p.a.

79 Case Study C Best Practice

80 Business Profile The business has the following profile: Circa 92 clients (Fee for Service) $1,255,129 of Recurring Revenue $148 million Funds Under Management (fee for service) plus $9,000,000 in trail commissions for retail products $24 million in additional FUM, group super/individual accounts (predominately no fee MySuper)

81 Financials 2018 expected Gross Revenue $1,260,859 $1,273,000 $1,030,000 Recurring Revenue $1,185,368 $1,195,000 $969,685 Expenses $287,934 $278,000 $270,000 EBIT $972,925 $917,000 $699,685 2 principal salaries $360,000 AEBIT* $612,925 *Adjusted for commercial salary for each principal of $180k Notes: Revenue stagnated due to commissions terminating with the move of clients

82 Funds Under Management YTD Y16 Y15 Y14 $148,000,000 $133,967,084 $105,275,592 $80,182,834

83 Client Age Segmentation

84 Key Strengths High Net Worth clients, average FUM per client is $1.6m Segmented service offer. Good revenue and profit growth. Tenure and retention of clients. Management and reporting structures. Total income is high and sustainable. Very low infrastructure with outsourced paraplanning. Service offer and pricing is competitive. Access to recognised and respected external experts. Moving to MDA FOFA compliant. Excellent compliance history. Mainstream product providers being used. Succession strategy is currently being explored. Quality, skill and expertise of advisers. No over exposure to key clients. Mainstream platform used. Profitable, standalone business. Good client segmentation target market. Good age segmentation with only 14.5% of FUM exposed to over age 70 plus. Good new business generation reflective of engaged advocating client base.

85 Key Weakness Single Centre Of Influence referral relationship, though formal JV established. 22% of clients are over the age of 70 Fees are not fixed and are linked to underlying assets. There is no targeted marketing currently. There is no marketing plan. There is significant key person risk. Key person dependency is being addressed in this succession/equity strategy.

86 Recommendations We strongly endorse the use of external Consultants in regard to future pricing structures. Additionally, we believe fixed fee pricing increases the valuation of a business as it reduces exogenous market risks i.e revenue susceptible to economic and market downward movement. Segmented fee structure ensures client choice as to the subscribed service level they require on an annual basis. The move to an M.D.A will further enhance client service and potentially business profitability. Portfolio management needs to be carefully considered to ensure there are multiple filters on research and performance and can be replicated and not exposed to a key person or guru effect. Compliance is a key value determinate and you have a recognized service provider. The adoption of FinaMetrica will also reduce compliance risk with sophisticated risk profiling. Twenty two percent of your clients are aged over 70. Thought these clients only represent 14.5% of Funds Under Management. There is a mortality risk to revenue and profitability. They have engaged myprosperity and have started be rolling out a branded wealth portal and phone app to the client base. This is essentially a live data aggregation service which will be providing to clients as a new service offering. Currently developing a paid bookkeeping service where they offer cash flow assistance for clients and have begun pitching this as a paid service.

87 Fair Market Valuation We would expect a multiple of 3.2 times to be applied to $1,199,884 Recurring Revenue or a market valuation range of $3,839,628. Adjusted EBIT allowing for partner remuneration is = $612,925 Adjusted EBIT $625,356 x 6 times multiple number = $3,908,475 There needs to be a viability check for any shareholder. A 50% shareholder would pay $1,838,775 and assuming it was financed at 7% debt servicing over a 10- year Principal and Interest loan peak debt would be $312,591 per annum and dividends would be $306,462 generating negative cashflow of ($6,129) or (.3%) net return on investment before deductable interest and future capital growth.

88 2018 Netwealth AdviceTech Report - Alpha Group companion

89 Summary Goal is 40% EBIT to Gross Revenue 15% + Return on Investment Embrace change and technology

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