The funding deal between Shepherd Direct and Stonebridge Group announced today marks a new era in modern mortgage market network financing and could be just the beginning for the investor firm.
Mortgage Solutions looks at the implications of the deal for the network and its mortgage and protection advisers.
Group editor, Victoria Hartley talks to Richard Adams, managing director of Stonebridge Group
Q Does this suggest the network funding model is broken?
This announcement represents quite the contrary argument. Shepherd Direct is a progressive firm that is 100% committed to the property market and its investment in our network is a hugely positive endorsement of the model we operate and our joint confidence in the future of our sector.
Q What other services/advantages does the deal with Shepherd Direct offer you, alongside cash?
Along with the additional resource and logistical support that Shepherd Direct can offer us, there are many synergies between the two Groups that will provide added appeal and strength to our overall proposition. Shepherd Direct has significant interests in survey distribution, estate agency franchising, lead generation and lettings. It is this diversity of product and service offering which will add considerable value to all our appointed representative (AR) firms, without competing in the same space. In that sense it’s a very logical match and a seamless fit, allowing us to develop and evolve in some very attractive areas that will benefit all concerned.
Q Can you give us any details on the deal?
You wouldn’t expect me to give out such detail but for us, this was never about the cash injection. Stonebridge has always been one of the most financially secure networks in the market with a history spanning 27 years. This investment has been made and accepted purely to place Stonebridge in a position to take the next step in our evolution. It’s a very welcome investment for a minority stake in the business, but it doesn’t detract from our over-riding first priority which has, and always will be, to make the right decisions for the future of our ARs and their clients through quality and sustainable growth.
Q What advantage will this give you and your advisers in the market?
Going forward we will be in a position to take advantage of the various emerging opportunities expected over the next few years while maintaining and improving our current proposition. Our market is, again, going through significant change and our complete focus on mortgage and protection is proving highly attractive as the adviser market continues to polarise. Stonebridge is however in the unique position of owning our own end-to-end mortgage and protection software, Revolution, which is used by our AR firms and provides them with considerable advantages, enhancing their business from lead generation and sales progression through to business processing, marketing and customer retention. It is also available to directly authorised firms and we want to make it available to a much wider market in the months ahead. We will continue to invest heavily in developing and expanding Revolution and this is just one of the areas in which Shepherd Direct will be able to assist us.
Q What are the outer edges of your broker recruitment ambitions? ie. target firm numbers?
Our recruitment and growth is definitely not based on a numbers game; we have never targeted by numbers but by quality and fit. That said, Stonebridge has doubled its numbers, in every respect, twice over the last three years but our focus remains on seeking out like-minded firms. This is where our interest lies, not simply bringing on board new firms just to bump up the overall numbers; recent history is littered with collapsed networks that followed this strategy and, to our mind, it is doomed to failure. Our success has never been the result of specific targets, just our ability to react and provide the solutions that the AR market is looking for. In that sense we feel we have one of the strongest network propositions in the marketplace.
Q How many firms are you expecting from the Legal & General network this year after network boss Stephen Smith said Stonebridge alongside MAB was a ‘preferred destination’ for its ARs?
We are in talks with firms from all over the market and have no project to target any specific network. We prefer to concentrate on a proposition-led recruitment policy which means we have to take a much less proactive approach to our growth. It’s the strength of our proposition that will determine our growth in this area; at present we’re able to offer a service that is attractive to a growing number of quality AR firms who recognise the value in what we can offer and the overall benefits of having us as their Principal partner. By maintaining this we believe the number of firms interested in being part of the Group will remain strong.
Group editor Victoria Hartley talks to Rob Clifford, executive director at Shepherd Direct
Q Why was this deal with Stonebridge attractive? What does Stonebridge offer other firms don’t?
We’ve looked at a number of firms in the sector over the years and Stonebridge is clearly a well-run and mature business. I recall writing an article for Mortgage Solutions some years ago which looked at the 45 to 50 mortgage networks post-‘M-Day’ and we all now know that most of them failed to survive, let alone prosper as Stonebridge has. It has stayed the course for over 25 years, has clarity in its proposition and isn’t a complicated business. It’s already got impressive scale but also bags of capability and potential to double and treble in size particularly given our support and this investment. Crucially, Stonebridge has an experienced leader in Richard Adams and an equally impressive top team, plus really strong and personal relationships with its member firms. All of this aligns perfectly with the Shepherd Direct growth strategy.
Q You say you have ‘selective M&A plans’. Which sectors are you looking at and could this involve other broker firms?
Myself and my co-directors are no strangers to M&A activity having built, invested in and acquired many businesses plus a number of successful joint ventures such as our joint venture with Sesame Bankhall for valuations which is going great guns after just three years from start up. Moneyquest is a business we bought some years ago and which is doing very well as is Century 21 UK. Right now we have a strategy to significantly grow our surveying, property lettings and our financial services footprint, so our investment in Stonebridge is certainly not the only thing we are up to. Both for the wider Shepherd Direct Group and for Stonebridge specifically we expect to have more news to reveal soon in relation to further investments of this nature and in the sectors we currently operate in.
Q Is Shepherd Direct aiming to be another Countrywide/LSL in several years’ time?
Not specifically but the comparison is often made, given that Shepherd Direct is also a very successful property services group which primarily provides solutions for mortgage lenders in the UK like the firms you’ve named, but we remain privately-owned and controlled which gives us some advantages. From our start in 1989, we have built a broad and diverse business serving the UK residential property market. Shepherd Direct plays an important role in supporting a vibrant housing market, which is an essential component in increasing the availability of homes across the country.
Q Are you willing to buy a further stake in Stonebridge?
Our strategy for growth in valuations and surveying, in financial services and agency is very clear and ambitious. We see the value in existing management teams continuing successful strategies and having interests aligned, such that taking a significant minority equity share is a sensible investment strategy for the Group. We will definitely be making more investments of this nature by acquiring stakes in businesses like Stonebridge.