Ac­quir­ing a taste for growth

– Stephen Young is one of the most re­spected names in South Aus­tralia. The Ex­ec­u­tive Chair­man of in­vest­ment com­pany E&A Limited, has not only led them to be­come one of the State’s most pow­er­ful play­ers, he has also served as a di­rec­tor for the Ade­laide Cr

Business First - - CONTENTS -

In the year Gough Whit­lam came to power, a fledg­ling yet very as­tute Stephen Young was en­joy­ing a Com­mon­wealth schol­ar­ship at the Univer­sity of Ade­laide. Look­ing to cut costs, a rar­ity for most spend-happy La­bor gov­ern­ments, scholarships be­came means tested and in his first year of univer­sity, Stephen lost his fund­ing. It didn’t de­tract from his am­bi­tion though. As he would do later in life, he ne­go­ti­ated op­tions to achieve his ends.

“I de­cided that I would work for an ac­coun­tant over Christ­mas,” Stephen says. “I was study­ing Eco­nom­ics and I’d writ­ten up the fam­ily books. As I was al­ready work­ing for an Ac­count­ing firm when I lost the schol­ar­ship, I asked them if they would mind me work­ing part time to pay my fees while study­ing full time. They ac­com­mo­dated that and this re­ally gave me a head start.”

Stephen com­pleted his de­gree and went straight into his pro­fes­sional year, a nec­es­sary com­po­nent to be­com­ing a Char­tered Ac­coun­tant. The other thing you need is three years’ ex­pe­ri­ence.

“As a re­sult of that part time job, I be­came a Char­tered Ac­coun­tant 18 months quicker than any of my mates and that gave me, for want of a bet­ter word, an edge. It meant that I was able to do more in­ter­est­ing work.”

Sim­i­larly to any­one with a com­pet­i­tive streak, when you take the lead, you want to stay in front. To do that, you have to con­sis­tently chal­lenge yourself. Stephen isn’t some­one to back away from the chal­lenge, though he will take a seem­ingly sen­si­ble and straight­for­ward ap­proach to it. That is prob­a­bly one of his strengths.

His rise up the cor­po­rate lad­der was swift. When he was work­ing in the Tax area writ­ing up books and com­plet­ing sim­ple tax re­turns one of the part­ners in the Ac­count­ing firm he worked for was ap­pointed re­ceiver and man­ager to a rel­a­tively large busi­ness. He needed some­one to help run that busi­ness and Stephen had his first taste of be­ing a cor­po­rate re­cov­ery prac­ti­tioner. “It was a chalk and cheese choice be­tween writ­ing books, or be­ing in­volved in busi­ness man­age­ment. I was just dead lucky that I ended up help­ing this part­ner on a cor­po­rate re­cov­ery as­sign­ment,” Stephen says.

The busi­ness that re­quired re­cov­ery was a foundry. It was in se­ri­ous fi­nan­cial trou­ble and Stephen was able to cut his teeth by ap­ply­ing what he’d learnt in man­age­ment ac­count­ing at Univer­sity, and by de­fault he worked out ex­actly what he wanted to do with his life by age 19.

Af­ter com­plet­ing Univer­sity he went onto Peat Mar­wick (now KPMG). Stephen ap­proached Rick Allert who at that time was Ade­laide’s leading Cor­po­rate Re­cov­ery Prac­ti­tioner and while there was no job at that time, he joined Peat Mar­wick’s au­dit di­vi­sion un­til Rick won his next big In­sol­vency as­sign­ment, which for­tu­nately oc­curred soon there­after.

The next big break came in 1979 when Rick Allert and John Heard who had been with Peat Mar­wick for a num­ber of years de­cided to open their own bou­tique cor­po­rate re­cov­ery prac­tice. Stephen joined Allert Heard and Co and was pro­moted to part­ner in 1982, just six years af­ter grad­u­at­ing Univer­sity. In Stephen’s words, “It was a re­ally ex­cit­ing time.”

Allert Heard was a trail­blazer in the cor­po­rate re­cov­ery sec­tor in South Aus­tralia. They be­gan a trend to­wards specialist Cor­po­rate Re­cov­ery firms that continues to this day and as a re­sult the busi­ness quickly grew. Stephen be­came a part­ner age 26 and was an equal eq­uity part­ner by the time he had reached his early-30s.

In 1989, when Arthur An­der­sen came knock­ing on the door with a merger in mind, the game changed again.

“They said ‘we want to ex­pand our op­er­a­tions in South Aus­tralia and we’d like to buy your firm’. I had been ne­go­ti­at­ing to buy the re­main­ing eq­uity in the firm my­self, as Rick and John wanted to fo­cus on their pub­lic and pri­vate direc­tor­ships. As a con­se­quence I went from buy­ing Rick and John out to sell­ing all of our in­ter­ests – which was ter­rific for me. It cashed me up and in ad­di­tion, gave me a lead­er­ship role in a global Ac­count­ing Firm.”

Stephen be­came a Man­ag­ing Part­ner of Arthur An­der­sen; a firm that grew from 40 people to in ex­cess of 120 people .The firm which had a large Cor­po­rate Re­cov­ery busi­ness which pros­pered in the early 1990s fol­low­ing the col­lapse of the State Bank. As he had over­seen the en­tire tran­si­tion and de­liv­ered strong prof­its dur­ing the re­ces­sion he was in­vited to serve two

years on Arthur An­der­sen’s World­wide Ad­vi­sory Board.

“I ended up by man­ag­ing the Ade­laide Prac­tice, a num­ber of ser­vice lines through­out Aus­tralia, and from a per­sonal growth per­spec­tive was on their World­wide Ad­vi­sory Board. At that time Arthur An­der­sen and An­der­sen Con­sult­ing had 360 of­fices in 60 dif­fer­ent coun­tries around the world.

“I spent a week out of ev­ery six weeks over­seas some­where be­ing in­volved in the gov­er­nance of Arthur An­der­sen. It was very good for me. I was a coun­try kid; the son of a sol­dier set­tler and it gave me a global per­spec­tive. I achieved most of my early goals but my per­sonal am­bi­tions grew con­stantly be­cause of what I saw and learned glob­ally.”

Life has been a big growth curve for Stephen. His busi­ness cre­den­tials are some of the most im­pres­sive in Aus­tralia, but he is a man of his roots and he knows where he first de­vel­oped his lead­er­ship skills. It was on the farm with his fa­ther.

“As a coun­try kid I was sent to Board­ing School to fur­ther my ed­u­ca­tion. We worked on the land with my fa­ther and broth­ers each hol­i­day break: May was shear­ing; Septem­ber was lamb mark­ing and dur­ing the Christ­mas break we’d har­vest the crops. Each hol­i­day my broth­ers and I had work to do. We worked with two or three jacka­roos on our property who gen­er­ally went straight from school to work­ing on our property for twelve or eigh­teen months. As I grew older, maybe about 13 years of age, when these jackeroos would have been 18, I dis­cov­ered I knew more about what they had to do than they did.

“That was good early ex­pe­ri­ence for me and I gained lead­er­ship skills. In my last year at school I was also head of my board­ing school and was able to build on that ex­pe­ri­ence as I learned more about the re­spon­si­bil­ity and the ben­e­fits of lead­er­ship.”

Stephen says those early lead­er­ship ex­pe­ri­ences helped him when he first was called upon to lead older men when he took on the In­sol­vency job in the metal foundry for his first ac­count­ing firm. He was young and work­ing with tough blue col­lar trades­men who had great foundry skills but no fi­nan­cial skills.

“My ac­count­ing knowl­edge made a dif­fer­ence to the prof­itabil­ity of the fi­nan­cially trou­bled busi­ness. I found I was mak­ing a con­tri­bu­tion which was recog­nised by far older and ex­peri- enced men as be­ing valu­able. I was able to help them plan and cost their work. Their ac­cep­tance of me gave me con­fi­dence to lead where I thought my knowl­edge could add value. Re­spect is earned and it is re­ally what lead­er­ship is about – the abil­ity to add value to a group of people work­ing to­gether.”

Adding value is what mo­ti­vates Stephen to this day, that and work­ing with great people. It was the mo­ti­va­tion be­hind the cre­ation of Eq­uity and Ad­vi­sory Ltd in 1997. E&A was also the cul­mi­na­tion of all of Stephen’s ex­pe­ri­ence, from fi­nan­cial trans­ac­tions to run­ning dis­tressed businesses, deal­ing with en­gi­neer­ing, man­u­fac­tur­ing, or op­er­at­ing prob­lems, buy­ing and sell­ing businesses, ac­qui­si­tions and the cut and thrust of ne­go­ti­a­tions that he is still so fond of now.

The Arthur An­der­sen merger al­lowed him to see how to bring two or­gan­i­sa­tions to­gether suc­cess­fully, and how to run global pro­fes­sional firms. He learnt that merg­ers and ac­qui­si­tions are about com­bin­ing businesses with dif­fer­ent cul­tures to work to­gether in a con­struc­tive and pos­i­tive man­ner.

When he ini­tially formed Eq­uity and Ad­vi­sory Ltd the fo­cus was on in­vest­ing pri­vate eq­uity in businesses with turn­around or ex­pan­sion op­por­tu­ni­ties ‘eq­uity’ and pro­vid­ing strat­egy and merg­ers and ac­qui­si­tions ad­vice ‘ad­vi­sory’. Since 1997 Eq­uity and Ad­vi­sory has ad­vised on deals with a trans­ac­tion value in ex­cess of $5 bil­lion.

The par­ent com­pany of Eq­uity and Ad­vi­sory, E&A Ltd listed on the ASX in 2007 af­ter com­plet­ing six suc­cess­ful ac­qui­si­tions and now com­prises eight businesses who em­ploy over 850 people and have a turnover in ex­cess of $200 mil­lion per an­num.

Each of the eight sub­sidiaries, have struc­tures and man­age­ment sys­tems in place to en­sure the smooth run­ning of all businesses. This man­age­ment frame­work is called the ‘E&A Way’.

“When we ac­quire a busi­ness one of the char­ac­ter­is­tics we look for is an out­stand­ing op­er­at­ing team and their ca­pac­ity to ex­pand a busi­ness from an op­er­a­tional per­spec­tive. Of­ten the busi­ness doesn’t have the fi­nan­cial or man­age­ment re­sources to han­dle fur­ther growth and that is what we try to bring to the ta­ble when we de­cide to ac­quire the busi­ness. The com­bi­na­tion of great op­er­at­ing talent with strong fi­nan­cial and busi­ness man­age­ment of­ten cre­ates a great busi­ness.”

For in­stance Fabtech, whose ma-

jor ac­tiv­i­ties in­clude the de­sign, in­stal­la­tion and project man­age­ment of ge­omem­brane dam lin­ers, dam cov­ers and tanks has a strong tech­ni­cal niche. When E&A ac­quired the com­pany they put in place an in­vestor rep­re­sen­ta­tive who plays a sim­i­lar role to a CFO.

“They are part of the man­age­ment team with a di­rect line to the man­ag­ing di­rec­tor, who is usu­ally the best op­er­a­tor within the busi­ness. The man­ag­ing di­rec­tor has a di­rect line to both Mark Var­tuli who is an ex­ec­u­tive di­rec­tor of E&A Ltd and my­self. As ex­ec­u­tive chair­man I meet with the MD once a week and we go through a stan­dard agenda of is­sues in­clud­ing a fi­nan­cial man­age­ment re­port. We look at the state of the busi­ness, what has been achieved in the last week and what will be achieved in the next week. We have a monthly board meet­ing and a six monthly strat­egy meet­ing. We now are mov­ing a num­ber of businesses to a rolling 24 month budget, which looks at the month you’re in and com­pares that to the same month 12 months ago while also fore­cast­ing 12 months ahead.”

Stephen en­sures that whilst the businesses are in­de­pen­dent, there are rou­tine busi­ness dis­ci­plines across all or­gan­i­sa­tions. The E&A Way helps with the over­sight of ma­jor projects that are oc­cur­ring through­out the businesses. These projects gen­er­ate half of the com­pany’s turnover.

Early last year, E&A Con­trac­tors, an­other sub­sidiary, re­ceived a $2 mil­lion grant to­wards build­ing a wind tower busi­ness. The $10 mil­lion project in­volved up­grad­ing a large fa­cil­ity to pro­duce ap­prox­i­mately 100 full-time jobs over four years for wind tower fab­ri­ca­tion at the Whyalla work­shop.

The first con­tract won in Novem­ber 2012 to man­u­fac­ture wind tow­ers for the Snow­town II wind farm project was se­cured be­fore the fa­cil­ity was com­pleted.

In March last year an­other sub­sidiary Ot­toway En­gi­neer­ing locked in a $14.5 mil­lion site in­stal­la­tion works con­tract for San­tos’ Glad­stone LNG Up­stream Project – in Roma. The scope of the works in­clude plate pile cap in­stal­la­tion and weld­ing, re­mote well­head pipe spool­ing in­stal­la­tion and

‘ Stephen en­sures that whilst the businesses are in­de­pen­dent, there are rou­tine busi­ness dis­ci­plines across all or­gan­i­sa­tions.

weld­ing, and in­stal­la­tion and weld­ing of the pipe spool­ing for the main hub. At peak con­struc­tion, Ot­toway em­ployed 50 per­son­nel on­site.

“We have a num­ber of ma­jor projects,” Stephen says. “In­creas­ingly as much of half of the turnover is gen­er­ated through these ma­jor projects; the rest is gen­er­ated through re­cur­rent or rou­tine work, which re­quires a lower level of man­age­ment from my­self. Half our turnover is gen­er­ated over a dozen ma­jor projects and they are all im­por­tant to us.”

E&A is sen­si­ble about what they take on. “We try to make sure that we have the com­pe­tence to do the work. We try to elim­i­nate ten­der­ing for any project we know we don’t have the abil­ity to com­plete suc­cess­fully. We are not en­tre­pre­neur­ial when it comes to se­lec­tion of work. We ex­pand in­cre­men­tally rather than by way of tak­ing am­bi­tious steps like a fron­tiers­man. We then an­a­lyse project risks to de­ter­mine whether the risks are ones we are con­fi­dent we can man­age. We also look for op­por­tu­ni­ties to do the work dif­fer­ently. If there are in­no­va­tions we think we can bring to the client, then we make a de­ci­sion as to when we dis­cuss those op­por­tu­ni­ties: dur­ing ten­der, af­ter ten­der, or whilst un­der­tak­ing the con­tract works. In some cases it is bet­ter to keep op­por­tu­ni­ties up your sleeve un­til we’re on the job and say we can do this bet­ter or dif­fer­ently and would you mind al­low­ing us to do it that way.”

It hasn’t all been roses. BHP’s Olympic Dam project fell through and cost E&A a lot of money. As did a re­la­tion­ship with Li­hir Gold. Newcrest ac­quired Li­hir af­ter E&A Con­tract­ing sub­sidiary Louminco had signed a pro­cure­ment con­tract. Louminco was no longer re­quired as Newcrest had its own pro­cure­ment team and Louminco forced to ne­go­ti­ate de­ferred pay­ment terms with sup­pli­ers.

“We talk to our people about re­silience and per­sis­tence be­ing a virtue,” Stephen says of how the com­pany man­ages crises. “Our man­age­ment team un­der­stands that not ev­ery as­pect of each ac­qui­si­tion will go our way, nor will ev­ery ma­jor con­tract be suc­cess­ful.

I think how we man­age an ad­ver­sity is one of our strengths, we roll up our sleeves and deal with the is­sue. That is what I do and what I ex­pect. When there is a prob­lem we make it eas­ier by shar­ing it and work­ing on it un­til it is fixed. That’s what we have al­ways done. We are not pas­sive about our man­age­ment style. My man­age­ment team and I are all over each ma­jor is­sue be­cause that is where I think we can add value.”

It takes a de­gree of commercial nous to be able to work across a num­ber of businesses dis­ci­plines, in dif­fer­ent ge­ogra­phies and with clients and that’s where E&A seeks to add value. Com­bine that with the ca­pac­ity to con­vince fi­nanciers to pro­vide debt fund­ing and our ca­pac­ity to raise eq­uity is what E&A brings to businesses it ac­quires. “We are in­creas­ingly find­ing that businesses that want to grow, need those skills,” Stephen says.

As for the fu­ture, it is a steady as she goes ap­proach. E&A will do more of the same, but in do­ing so the ex­pec­ta­tions are the com­pany will dou­ble in size in the next five years.

“It fol­lows some­what log­i­cally that if we con­tinue to grow the top line, we will con­tinue to grow the bot­tom line. That is a spe­cific fo­cus of ours. We are in busi­ness to in­crease re­turn to share­hold­ers and we have a strong fo­cus on de­liv­er­ing in­creased share­holder value. We want to pay sig­nif­i­cant div­i­dends and to do that we have to gen­er­ate a profit and turn profit into cash. We are com­fort­able rein­vest­ing in our businesses and we like to in­vest to make money and cre­ate share­holder wealth.

That will gen­er­ate re­spect. And it is the hall­mark of the E&A busi­ness.

Stephen Young

Newspapers in English

Newspapers from Australia

© PressReader. All rights reserved.