Below are some notes I took on a call with Simon Madder of Prime Financial in my initial research.
Ask about History of the business – Asset management, minority stakes, current etc.
1998 father and self-talk about accountants more involved with wealth was the initial idea
Model where them as accountants and a JV model where half owned by accountant and prime. Prime delivers wealth services and accountants refer into that. Allows accountants to offer financial planning services
5-6 years on were able to partner with ~30 firms, distribution model where they could control advice process and partner with accountants who refer to them.
Private capital raise 1/3 family 1/3 melb property 1/3 casino business
move model into owning minority equity interest of up to 50%.
9 years in, how to create liquidity event/scale. 3m of EBITDA and approached by another listed company, entered into transaction on 1 jan 2007, prime shareholders owned 40%, 1 year prior to GFC.
After gfc they learned needed to be far more focused. Exited funds management business, exited corp advisory business, sold a fin planning bus, acquired remaining equity in one other planning bus.
2013-15 – business cleaned up and in solid position – 5-6m ebitda. Started getting concerned that execution wasn’t as good as they would like. Made a significant pivot and sold all minority equity interests and acquired 100% of one they really liked. Took 3-4 years.
2017-18 completion of restructure, prime to be primary brand, keep JV with select few of their favourite firms.
Ask about Headcount – How are they hiring so many staff? – i.e., 90+ in FY21 to 130+ in FY22
Especially when GP%
22 = 47.5%
21 = 47.5%
20 = 44.6%
19 = 39.5%
Philipines up to 30% of team. Hiring approach here is covered by p6 in slide. Pressure in accounting division in particular, growth reduces attrition and allows internal promotion. They don’t view phillipines as outsourcing. Business owner mentality, start earning equity after first 12m based on equity targets.
80% of the increase in the phillipines – almost not a division that doesn’t leverage off the phillipines
Hiring policy around people, culture and capability – flexible working practices - not forcing people into the office.
Ask about Margins by division
Accounting = 35%
Capital = 30-35%
Wealth = 27% - room to expand?
SMSF = 20% - room to expand the existing margins (pre-intello deal)
Ask about NCI – do they foresee taking a 100% position in any of the remaining minority stakes and controlling stakes (Rundles, Green Taylor or PFG Nth QLD)
Wealth management JV with other accountants, remain as is
What are the billing models of each division?
Accounting is service agreement, monthly debiting and 12m service agreement.
How do you incentivise internally? Budgets, Lockup targets, productivity (billable/total hours), Revenue per partner or employee? Gross margins?
PowerBI for majority of staff, super transparency, billing, wc targets etc.
Wealth management – new clients, retention, revenue targets
Smsf – client service, new and retention
Corp advisory – new engagements, revenue generated
Every team member gets benefits for cross referring to other divisions
They consider top quartile base salaries + STI for over budget (half upfront, half 12m). All staff participate in LTI as collective earnings depending on seniority.
Do you use timesheets?
Yes in accy division
Acquisitions – How do you assess these, financially and cultural fit?
Team of intello has been offered equity within 12m as well. 10-11 people on the headcount pre deal. Restructured under former owners. People on senior level are able to focus on services and don’t have to focus on leases and debtors etc.
If you were to give an organic/acquired split for the 50m revenue (incremental 24m), what would you expect? Do you foresee stable or higher margins on this 50m, dilution?
15m ebitda on the 50m
Intello
What do the historical results look like for intello (revenue and profits for past 3-5 years?)
Level for 3-5 years natural ceiling, 1.5-3m typical plateau. Been around for ~12 years
Where/how does this business require integration? Both use class etc.
Whole stack first 4 weeks, bringing everything onto standard operating system, majority of work done in first 4 weeks.
What happens to the team after the initial 12m service period by the existing team of Kevin etc. – who runs it afterwards and staffs it?
they do
4,000 SMSF currently are being serviced and you want to “grow significantly” – how do you expect to do this?
Digital marketing with new business development manager. Prime has own bus development team too, all existing is organic.
e. What is your view on BGL (~$180) as a cheaper alternative to Class (~$275). It is about 2/3 the price.
100m turnover in 5-10 years. 150m market cap
Half a bil on 10y view