Business Review Weekly

ACCOUNTANCY WEEK An Adelaide practice thrives on software and property syndication By Tony Thomas

Brothers Greg and Harry Perks run an Adelaide practice that has achieved astounding success in two distinct businesses - software development and property syndication. Since April last year, Perks & Associates has sold 650 copies of its software Focus for Results (FFR), mainly overseas. The property syndications, in which the firm usually takes a 10-20% stake, amount to $150 million and involve the big shopping centre in most of South Australia's main provincial centres. Because the purchases began with distress sales conducted by banks in the early 1990s, the investors have enjoyed surging cashflows and big capital gain.

Right: Harry Perks: The property portfolio is valued at $150 million Left: Greg Perks consults with Ulrike Klein, a director of cosmetics company Jurlique, at a retail outlet
Photos: Randy Larcombe

Greg, 43, and Harry, 50, got together in 1981. Greg had worked for Peat Marwick and Touche Ross, and Harry for Touche Ross and then a small firm. "It was a great training ground but not our philosophy," Greg says. "We wanted to get our hands dirtier."

The firm has seven partners and 45 staff, making it one of Adelaide's largest independent firms. For a couple of years in the early 1990s, Perks was recruiting more graduates than some of the Big Six in Adelaide. Budgeted fees for 1998-99 are about $4 million, excluding software sales revenue and including fees for property work. The expected fee growth is 10%.

"We went to the second boot camp of Results Accountants at Sanctuary Cove in 1992, when we had 15 people, to see if we could operate more imaginatively," Greg says. "Harry said to me in the Hyatt pool, 'Now I know what an accounting firm should really be doing, and it's not just accounting'. We set up Perks Consulting - now with three specialists - and our firm became our first client.

"Our director Neil Anderson and I went back to university to do graduate diplomas in business management. A lot of the diploma material was old hat, but I found a quarter of it was new and refreshing, such as the latest American gurus' theories, and I grabbed them for our operation. One idea was HOT FM teams, an acronym for human resources, operational, technology, and finance and marketing, to ensure our people understood our key drivers for improvement. Without such a focus, people would stay in their comfort zones and just do the compliance work that kept pouring through the door."

Greg became frustrated that his partners could not drag themselves clear of technical work to start consulting. He says: "In 1995, I came back from my Christmas break determined to break the logjam. We had invited clients to fill in check lists, but it was boring for everyone and they didn't want to know about it. The diagnoses did not get done and consulting didn't materialise. My brainwave was automated diagnostics through software, which clients could enjoy while relieving the time pressure on our people. This idea came because my diploma units had concentrated on marketing and technology."

He set up Perks Business Technology with directors as shareholders, and recruited talented young computer graduates James Smith and Mark Davis. They created a program where clients answer yes-no questions, and a report is generated with priorities, timetables and budgets to reach agreed goals. This overcomes CPAs' weakness in sales techniques, and their inability to find time to write management reports.

Clients saw it as a friendly audit of their affairs. Greg says: "We tested it with other accountants and lawyers, and they all wanted a copy. Firms call it their ticket to freedom."

By the end of 1996, Greg had obtained international patents, and demonstrated the software to Paul Dunn, chairman of Results Accountants. Dunn's comment was: "I can't believe I didn't think of this myself. I want to market it." Dunn named it Focus for Results and got the help of boot-camp firms in the United States and Britain to internationalise it. Results does the front-line client support and Perks solves the technical issues.

FFR has sold 200 units in Australia, 100 in Britain, 50 each in New Zealand and Canada, and 250 in the US. Greg is now testing FFR with other professions, including financial planners and solicitors at two big Adelaide law firms. The check list in the solicitors' version covers 200 issues ranging from intellectual property protection to employment practices.

Greg thinks the software output could create more referrals from lawyers because it makes the needs of many clients explicit. Each profession has unique skills but there are overlapping services, such as asset protection and estate planning. "Who wants to know about $65 tax returns? Not us," he says. "We want clients willing to give us their first call, listen to our advice, guide them on business improvement, and in turn generate high profitability for ourselves."

An attraction is that, while clients are answering the software questions, relatively junior accountants and solicitors, rather than partners, can answer the minor queries.

Although the software can produce a report almost instantly, firms usually delay for a week to add to perception of value and avoid rushing to sell services. "Clients need time to think about the issues they have just raised," Greg says. "The report is also matched to an agreed monthly fee budget."

To improve practical skills in the profession, he intends setting up a South Australian user group of about 25 firms to share success stories and weaknesses, and to develop their strength in associated skills such as marketing. He says: "Most clients are startled to discover that tax issues are not the only things their accountant knows about business."

Harry Perks began the property syndication in 1990. Self-investment ensures commitment, he says; "our own 'hurt money' is in there." The portfolio of nine shopping centres and one office tower, owned by 50 investors, is valued at about $150 million. There is a common core of investors in four or five properties and a trickle of new ones. Greg says that, in a small way, the firm has created a portfolio similar to the well-performing listed CountryWide Property Trust. He says: "It's good for our directors to have a percentage of many investments than to have a lot of one investment. We also get a much deeper involvement with our clients. Many clients have high net worth but no time to spare on detailed work searching out capital growth projects."

They have not sold any of the properties. "We bought only centres we would be keen to hold. Now, by selling we would have nowhere to re-invest so well," Greg says. By contrast, some Melbourne accounting firms have bought Adelaide property for syndicates and have charged fees rather than becoming investors themselves.

The firm has developed software to analyse centres in terms of cashflow, long-term debt reduction and value creation. Eight years later, the model they use is unchanged.

In 1990, few buyers were prepared to put up the $5-15 million needed for shopping centres, although many for sale through the State Bank of SA and other injured lenders had secure tenants. Some of the properties were yielding 15%, with good growth prospects. Harry's philosophy was to secure each of the centres that was dominating the trade in its particular town. As strip shops declined, centre traffic increased.

The first syndicate included five clients and the property was Westland, Whyalla, bought for $12 million. Harry says that, after upgrades to include Target, Woolworths, a food court, and specialty stores, Westland is now the biggest non-metropolitan centre in SA and is worth $30 million. An expansion for Bi-Lo, and possibly cinemas, is being considered. Target's store at Westland is the only one on the state's west and upper-west coast. It opens the catchment pool up from 25,000 to 80,000, diverting many households from driving five hours to Adelaide.

The syndicate had the good luck about 1995 to buy the Roxby Downs centre just before the announcement of WMC's expansion. It is spending $7 million to increase its floor space. Syndicates own the Berri Mall with its big Coles store, and the Woolworths centre at Naracoorte. The vineyard expansion is creating a boom in nearby housing. In 1997, Perks acquired two centres at Victor Harbor (one based on Woolworths) for $18 million, and last July the Mt Barker centre for $17 million, with plans for an $8 million expansion. Victor Harbor has a 4% annual population growth, largely through tourism and leisure, and Mt Barker has 3%.

Harry Perks says: "The first five years are the hard ones. But at the high yields, returns can be structured tax-effectively using depreciation, and the debt paid down. We had the huge windfall of being able to finance centres yielding 15% at 10% or 11%. Now we are refinancing some at only 7%, so returns are going up and values are lifting dramatically. We ration things so only clients can join syndicates. Little of the investment is through super funds. That is all too hard."

The firm's success has created a cycle where lenders and agents such as FBD Raine & Horne and Knight Frank now bring good deals to it for assessment. Harry says: "Everyone in SA knows us. We can raise several million in a few weeks. We have remained loyal to our original financiers. We don't switch just because some lender is fractionally better today and worse tomorrow." The vacancy factor in the centres is only 1%. "We intend keeping the shops full by being fair and not ripping tenants off," he says. "There is a happy medium in these things."

The five-storey Adelaide office building originally cost $11 million to build. A syndicate that was smothered in cash from its previous purchase bought it fully leased for $6.5 million in 1995, for a 14.5% yield. Because the investors also bought the fixtures and fittings, the depreciation allowance is huge. The firm also owns the $2 million mini-centre where it has its offices. Whenever tenants move out, the firm takes more space.

Harry is prominent in the racing industry and a proud member of the syndicate owning Gold Guru, which he describes as Australia's champion three-year-old.

Accountancy week is edited by Tony Thomas