Count Financial faces up to reality by backing CommBank acqusition

The Commonwealth Bank has moved to acquire Count Financial and, as Mike Taylor reports, pragmatism and the realities of the Future of Financial Advice changes are the driving forces behind the Count board’s decision to recommend acceptance of the bid.

Count Financial executive chairman, Barry Lambert is a pragmatic man. Thus, when certain representatives from the Commonwealth Bank (CBA) approached him some 10 years’ ago to discuss the acquisition of his accountancy-based financial planning group he listened to what they had to say, but ultimately said “no”.

From time to time over succeeding years, Lambert received similar approaches and, given the prevailing circumstances, continued to say “no”.

His decision this year to refer the matter for full and serious consideration by the board of Count Financial was therefore based on a pragmatic assessment of the circumstances facing the company at the present time – the uncertainties generated by the Federal Government’s Future of Financial Advice (FOFA) changes and the reality that, like most similar financial services companies, Count’s share price has struggled to recover from the worst impacts of the global financial crisis.

By any objective assessment the CBA’s offer to acquire Count Financial at $1.40 a share, and the underlying terms it agreed to facilitate the transaction, were generous but in the minds of both Lambert and Count’s chief executive officer, Andrew Gale, the most important element were the undertakings with regard to Count’s continuing independence in terms of structure, open architecture and the maintenance of its own approved product list.

However, if anyone had been closely listening to Gale over the past 12 months they would have gleaned from his comments that he has long believed the direction being pursued by the Federal Government via its FOFA changes strongly encouraged vertical integration.

While Colonial First State (CFS) chief executive Brian Bissaker told Money Management last week that FOFA had not been a key determinant in the CBA’s decision to acquire Count Financial, the proposed legislative and regulatory changes were certainly front and centre for Lambert and Gale.

Bissaker, probably aware of the number of times the bank had approached Count, said the company would have been attractive with or without FOFA, but Gale said there could be no denying that the Government’s changes were a catalyst.

“We have been saying for the past 15 months that FOFA will encourage vertical integration and you have to be pragmatic in how you deal with that,” he said.

Indeed, both Lambert and Gale are as one in arguing that as big as Count Financial had become, its options in the proposed new legislative landscape were limited and the uncertainties were considerable.

In essence Count, which had taken strategic stakes in a number of competitor financial planning groups as well as the mortgage broker, Mortgage Choice, had two options – it could seek to become bigger by pursuing vertical integration or it could accede to the sort of offer delivered by CBA.

For the ever-pragmatic Lambert it was a question of which option would generate the greater number of referrals, and there is no question in his mind that far more referrals are likely to flow from the vast bulk of the Commonwealth Bank than would ever flow from Mortgage Choice or aligned but still competitive dealer groups.

As well, and unlike their counterparts at dealer group Professional Investment Services, Lambert and a number of the Count board members exhibited no particular enthusiasm for pursuing vertical integration with respect to funds management.

In Lambert’s view you could seek to grow organically and by acquisition at the same time as building products, but such a strategy carried with it both considerable risk and expense with few guarantees of success.

He said it was a strategy that Count was pursuing but with an eye to the sort opportunities that might arise from an unsolicited bid, such as that which ultimately came from CBA.

While the Count shareholders are yet to vote on the CBA offer, it is already evident that Lambert and Gale feel comfortable dealing with the likes of Bissaker and believe the big banking group would not be prepared to spend $400 million acquiring Count Financial only to ruin the business.

Lambert and Gale believe CBA will deliver Count the scale, resources and all-important referrals necessary to see the business grow and survive in the new FOFA world.

They see synergies for both businesses, with Gale believing CBA’s bulk will help Count develop a viable model for the competitive delivery of scaled advice along with new products such as a general insurance offering, while the CBA will benefit from the reach Count will provide into the advisory space, especially with respect to Self Managed Superannuation Funds.

While there have been plenty of critics of the motivations for the Count board recommending the CBA offer, there will be plenty of dealer group heads reflecting upon a major independent player such as Count moving under the vertically-integrated umbrella of the Commonwealth Bank.

They will also be reflecting upon Lambert and Gale’s acknowledgement that for many planning companies the FOFA changes demand scale but limit the options via which that scale is achieved.

While some of those accountant/planners working within Count practices may have their reservations about working under a bank umbrella, it is doubtful Count shareholders will find a great deal wrong with an offer which delivers them a considerable premium to the market value of their holdings.