Business services firm Carbon Group has achieved rapid national expansion on the back of multiple acquisitions.
Business services firm Carbon Group has achieved rapid national expansion on the back of multiple acquisitions.
Having made 18 acquisition deals in five years, Carbon Group is showing no signs of slowing down.
Since the group’s launch in 2014, it has increased staff numbers from 13 to 111 and grown turnover from $1.5 million to $12 million (as at June 2019).
Founding partners and past 40under40 award winners, Nathan Hood and Jamie Davison, have ambitions to expand their Osborne Park-based business even further.
They are planning more acquisitions and intend to offer more services, including self-managed superannuation, audit and tax law.
The founders met through a business-networking group when Mr Hood had an accounting practice and Mr Davison had just started a bookkeeping business.
After about 18 months of referring clients to each other, the pair began discussing their idea of a seamless, one-stop-shop for business solutions.
“The relationship between us, we found really strong,” Mr Hood said.
“When (our businesses) referred out to any other services like mortgage broking, financial planning and general insurance, it became a lot more difficult to get that same alliance.”
Messrs Hood and Davison spent several months exploring the synergies between their accounting and bookkeeping businesses before merging the two as Carbon Business Group in July 2014.
They now have nine service lines after adding areas such as insurance and payroll to their offering.
Approaches to accounting and bookkeeping firms in Western Australia started early on as Carbon launched its acquisition spree, with the first in 2015 with the purchase of three Perth-based businesses in one day.
Four years on, Carbon Group has bought a further 15 businesses and set up offices in Osborne Park, Roleystone and Swan Valley, along with five interstate.
“We got a little bit of traction, so people found out that we could settle on deals, that we were good for our word,” Mr Davison said.
“Now, people approach us rather than us approaching them.”
The founders each acquire 50 per cent ownership of every new business while maintaining full ownership of their original accounting and bookkeeping firms.
Mr Davison said much of their growth was due to both partners reinvesting their share of profit into the group.
“Up until this time last year … we lived off our direct interest in our own accounting and bookkeeping firms,” he said.
“The ability to run the group really lean is what allowed us to do a lot early on.
“Our target for end of this financial year would be $20 million (in revenue) and we’re currently on target for that, which sounds exponential but it’s not really when we take into fact the acquisitions and what we already know is backed into the pipeline.”
The group has used bank loans to help fund its acquisitions, with National Australia Bank its main source.
“There’s no way we could have done it otherwise, so we’re really thankful for NAB’s support,” Mr Davison said.
Messrs Hood and Davison told Business News that, when selecting new operators for their business, they relied more on gut feeling than a formalised approach, with emphasis placed on the partner themselves and not their business.
“We would much prefer to settle on an amazing person who’s running an average business because we can fix that, rather than buy a great business with an average person who comes with it,” Mr Hood said.
“That person is what’s going to help us grow, not the business they bring with them.”
In their unusual approach, Mr Hood and Mr Davison said they like to catch up with potential partners in an environment completely outside of business, like a pub, bringing along Carbon Group CFO Mason Dunne or a practice manager.
“A lot more of the natural person will come out there,” Mr Hood said.
When evaluating potential acquisitions, Mr Hood and Mr Davison typically target either young entrepreneurial accountants seeking rapid growth or older principals seeking a succession plan.
They seek out partners looking to retire in two or three years rather than immediately, after experiencing difficulty with one partner who had already ‘checked out’.
“If they’re wanting out as quickly as possible, the underlying message is they’ve probably wanted out for a while,” Mr Hood said.
“We did an acquisition where the partner had checked out at least 18 months (prior) and most of the clients didn’t want anything to do with him.”
Additionally, the pair said they avoided negotiating with third parties as much as possible, preferring to deal with the person they were going to be in business with.
“Our strength is being able to make a deal happen that’s a win-win,” Mr Hood said.
“Unless you’re talking directly with a client or directly with a potential partner, you don’t know what their underlying roadblocks are; you just know what the lawyer’s spinning through at you, and lawyer talk is not necessarily the same as the partners meeting.”
The group has no formalised board structure, but the founders have bolstered their team by employing Mr Dunne as Carbon Group CFO last July.
“A fast-growing startup, which we still pigeonhole ourselves in, needs way more interaction than just monthly,” Mr Hood said.
“Because we’re exposed to so many high-performing businesses as an accountant, we get this huge suite of highly entrepreneurial people.
“Instead of formalising a board, what we’ve started to do is grab people who have really interested us and then do a day of workshop with them on whatever their key skillset is.”
Despite an initial struggle to gain exposure and credibility, the group said its key strengths were its brand and the ability to completely overhaul systems and processes for each of the businesses it bought.
“We haven’t really seen or come across any businesses that do things the way we do,” Mr Hood said.
“We have multiple entities set up so partners are completely in charge of their own destiny; they are in complete control of their own earnings and growth journey.”
Mr Davison told Business News the group had spent a lot of money on branding and entered a lot of awards, such as 40under40, in order to boost its credibility in the market.
He said that work had borne fruit in terms of the group’s expectations about its future plans.
“We’re certainly past that critical point where there’s not too much we could do wrong that we couldn’t easily recover from,” Mr Davison said.
