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
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.