Greater activity levels within the M&A sphere stem back to the Royal Commission 2019 report. It mandated better compliance and educational standards in Australia. Since then, a significant proportion of the adviser community, particularly older advisers, have decided to sell up.

This gives buyers or those looking at merging choice. And choice makes people choosy! They want to know what they are potentially buying, how it will fit into an existing business, where any gaps or fault lines in reporting lie,  and most of all, they do not want to overpay.

Shane Reid, Co-founder & Director at Ümlaut, comments: “Previous to the new regulation, a business would sell at two, three, or even four times the valuation of the book of business. But potential buyers are now taking a closer look at the book of business. They want some visibility over its compliance and client risk.

Clarity
But buyers in an M&A process can be at a disadvantage if everyone is looking for a good deal. There is often limited time to digest significant volumes of data to form a view on a valuation.

A lack of visibility compounds the time pressure because many acquirers have not evolved their due diligence tools. They continue to rely on traditional, manual, and defensive methods that look at historical earnings and Excel spreadsheets. They find it hard to get into the nitty-gritty of the due diligence process itself.

But given the proliferation of data over recent years, carrying out quantitative and predictive analysis is a must. Questions like how much the mandated audit procedure has been followed, whether the book of business provides a good fit with that of the potential acquirer’s, is it performing, and could it be grown are all harder to answer with low visibility.

Reid comments: “Valuations increase the more digitized and transparent a business is when it comes to knowing its own data. A clean book with strong revenue, analytics, and proper indemnity insurance is a far more attractive prospect to either sell or to buy. Any paper-based book of business, conversely, is subject to downgrades,” he says.

A recent KPMG survey points to room for improvement. It said that ‘more than 50% of respondents are still preparing the financial statements themselves in Word and Excel, with only a minority utilising either accounts preparation software or a cloud-based solution. And the majority share accounting policy guidance in Word or PDF formats, rather than through live platforms such as a webpage.’

Technology response
Happily, a technology response is available. Today analytical tools that can pull in, normalize, analyze and share data are proven and already diversely deployed.

“Our Insight platform is one tool that can help. It can feed into Microsoft 365 via PowerBI and create a data warehouse. It cleanses and categorizes the data to provide an up-to-date view and inform the valuations decision,” Reid says.

He explains that the one particular difficulty is when people have different systems for different things. They have to interrogate those different systems to develop a set of evidence points and a set of data that shows the whole business. 

“We have created algorithms to merge various data sets and to align them so that you get a valid, readable, and actionable output,” he says.

“This capability is a very vast improvement from the average business that is pouring time and resource into doing this on a monthly and reactive basis and manually,” he adds.

The same visibility principles can be applied post-merger or acquisition, at the point where two books of business need to become one. The analytical tools set up during diligence for the M&A evaluation can also be included in the company’s everyday business intelligence platforms and processes.

This makes for retaining the key insights and data sources that underpinned the deal and value creation plan in the first place. It means that decision-makers can stay on top of how the newly-formed business is performing and steer a course in line with the deal’s overall objectives and the business strategy of the combined entity and work towards business optimization.

Reid comments: “On an ongoing basis, you can mine your data sets to find out what is performing, where the gaps lie, who has lots of free cash accounts that should be invested, and the like. You can use that information to grow and scale the business. This allows you to extract maximum value from the book and identify where to go next.”

“It also gives you visibility over your advisers to find out which are generating the most and where, which are doing well with a certain client type,  and which have high conversion or attrition rates. Analytics and visibility give you the tools you need to refocus your business for success and growth,” he says.

He says this is something that people are very aware of, but they still think it is hard to do. There is rarely a data specialist in the average team, and cost has also been a barrier. Thus, it is important to leverage their knowledge and expertise to partner with the right provider.

“We already have the integrations, the connections, and the IPs in place to be able to do perform for a business. In addition to the technical specifications, we have the know-how. We are all about killing data entry and instead, providing measurable insight and visibility to best potion of growth and success,” he says.