Both players were driven by strategic imperatives. Clements Dunne & Bell (CDB), with annual revenue around $3 million, felt it needed alignment with a national brand. The Victorian arm of the national Hayes Knight group, Hayes Knight Melbourne, had roughly double CDB’s revenue. And for Hayes Knight Melbourne, the CDB merger solved a specific problem: how to expand back into the growing financial planning space that it had actually sold out of in 2007.
Hayes Knight director Vito Interlandi cites the reasons for that 2007 sale. “We needed to scale it up. We needed to put further and further resources into it to make it really worthwhile. We wanted to deliver a top-level of service to clients using financial planning services. It gets to a point in an accounting practice [where] unless you’re constantly adding to that portfolio, it becomes a clunky type of department to have, because of all the compliance that’s associated with it.”
But there’s little doubt that within the firm, the 2007 financial planning sell-out had become a matter of regret. (“Maybe it was, maybe it wasn’t,” Interlandi says guardedly.) Clients liked the idea of having someone in-house looking after their financial planning. And the market transformed after 2007 as the global financial crisis came to dominate clients’ thinking. In 2007, Interlandi recalls, the firm had only “a handful” of clients in self-managed superannuation funds. By 2012, there were far more – and they all wanted financial advice.
In July 2012, the demand for planning forced Hayes Knight to enter an authorised representative arrangement with a large financial group that would do the back-office work and research while Hayes Knight provided the advice. But Hayes Knight Melbourne managing director Paul Dal Bosco admits that by September “it had hardly got anywhere”.
Then along came Clements Dunne & Bell. CDB chief executive Paul Clements saw the same post-GFC boom in financial planning; the difference was that he could cater to it. In the bull market, he had been struck by many people’s ill-founded beliefs in their investment expertise. The GFC “knocked the wind out of a lot of people”, he says. Soon, CDB’s financial planning business was growing at more than 50 per cent a year.
Clements had begun thinking about a merger after several approaches in late 2011 and early 2012. He found an outside advisory group, Lawson Delaney, which had several potential merger partners on its books, and explained his vision of a firm that would fit perfectly with CDB.
“We were looking for a firm that had national branding, a firm that was a good strategic fit with each of our divisions – business services, audit and financial planning. On the audit side, we were doing a lot of calendar-year-end audits, so a firm that had a lot of June-end audits was a good fit. On the financial planning side, we were keen to grow that, so we wanted a firm that didn’t have a financial planning division.”
Lawson Delaney quickly introduced Clements to the Hayes Knight team.
Ticking all the boxes
Cultural fit was an immediate focus for both firms. Each wanted to ensure that they were heading in the same direction and that the rapport between the principals was solid. That, they say, was the make-or-break. Interlandi says he has seen mergers collapse when there’s been no fit, and that the “soft” aspects of a merger can be almost more important than the financial consequences. “We had one merger fall apart because we don’t have partners’ offices that look out onto the street,” he says.
“There’s no point getting into a merger if one part of the merger wants to become a tax compliance factory and the rest of the partners don’t want to do that. You have to look at that fit and understand if you’re able to travel down the same path together and achieve those strategic benefits that the existing group is looking for and the other group agrees with as well.”
If there is a cultural fit, you still need to look at the other firm’s books. “You either have culture or you have a financial consideration,” says Interlandi. “If those things don’t happen, you’re going to walk away.”
