According to Top 100 broker Leon Spadavecchia, the decision to merge one broking business with another should not be taken lightly.
MPA spoke with the Adelaide broker about the steps he went through to merge his business of ten years and become managing director of Financia.
A merger was a scalable solution
About three years ago Spadavecchia pulled the trigger on an idea he and his (now) business partner had considered for some time – a merger.
“The person I merged with was someone I’d known for about 15 years who had a very, very similar business,” he explains.
“We were very fortunate to be on many AFG overseas conferences. Every time we were at the conference, we’d be talking about the issues that we faced individually.
“We’d always flirt with the idea of a merger and then we’d come back to work for a year, forget about it, and then go on another conference a year later and talk about it then.”
In 2016 they decided to take action and spent the next 12 months on due diligence. They went through each other’s books and developed a deeper understanding of each other from a business perspective.
“Both of us had long term staff and we got their input to see how they felt about it,” Spadavecchia says.
“There was a general consensus that it would be a good idea to be able to create scalability.
“We saw a gap in the market in South Australia where there were a lot of independent businesses that were a bit old school. They needed something new and fresh, and so we embarked together to be able to create that.
“We were very fortunate we didn’t lose anyone through the merger – in fact, we gained people.”
While he rates the merger as one of the biggest challenges of his career, Spadavecchia says the decision ultimately paid off; the business tracking good growth even against the backdrop of COVID-19.
He says those thinking of merging their business should do the following things first.
1. Do some soul searching
Spadavecchia says it is important to spend time thinking about whether merging is something you really want to do.
“The first thing is to do your own soul searching because if you are your own boss, having someone else to be accountable to is a big change – especially if you’ve had your own business for some time,” he says.
2. Have a clear purpose
Both he and his business partner had a clear goal for the newly merged Financia and could back up the decision to join forces with an underlying purpose.
“Our sole purpose was to be able to create something special for South Australia to take on the market and to be able to have a business whereby mortgage brokers would want to join us,” he says.
“We had no ambition to go interstate, we wanted to get our own backyard right first and to be able to provide a new fresh approach to the South Australian public in mortgage broking.”
In terms of scalability, they foresaw an opportunity to access more support from lenders and aggregators as a larger operation, not knowing that the Royal Commission would soon be embarked upon.
3. Ensure the partnership is compatible
“The right person and the right mix of personality and character is paramount,” says Spadavecchia.
Having a good mutual understanding from the get-go is also important. This makes it possible for each party to take on responsibility for different areas of the business, he says.
“Having that commitment from each other – that one would be responsible or accountable for one area of the business, one would be for the other, and if there was no agreement, whoever is accountable for that side of the business is the one who would make the final decision,” he says.
“That’s what we agreed to upfront.”
4. Analyse each other from a business perspective
Even if you know the person you are planning to merge with quite well, it’s always a good idea to dig a little deeper, says Spadavecchia.
“If you’re merging with somebody else, your credibility and reputation is on the line if they’re not the right person or the right fit.”
He says it is important to really analyse and research one another to make sure there are no skeletons in the closet.
5. Seek advice
In the case of Financia, both parties did their own research and spoke to different people in the industry for advice before embarking on the merger.
Even though they knew each other quite well, they both had confidential discussions with confidants, business advisors, accountants and industry experts as well as their aggregators in order to gain a better perspective on the move.