Rumours that have been circulating for many months, if not years, were finally confirmed when MBL announced its intention to buy TrigoldCrystal for a minimum of £6.8m. The deal could potentially be worth over £15m dependant on the performance of the combined business.
Indeed this is now more than an intention, as contracts have been exchanged and sizable penalty clauses exist if either party pull out. The deal will still have to get the agreement of the Office of Fair Trading and this will take a further few months. In the meantime the companies remain rivals and keen competitors.
So why have the two largest mortgage systems merged and how will this affect customers going forward?
It is undeniable that the market for mortgage systems has been tough. The main revenue drivers for systems houses have been the IFA and Mortgage Networks and these have been going out of business or scaling back rapidly. The loss of Networks like Mortgage Times and Network Data has hit vendors hard and the price points of systems have dropped as the vendors try to secure clients in a shrinking market.
TrigoldCrystal itself was formed out of two companies last year and utilising the Crystal technology and its management team has managed a reduction in revenue of 50% compared to the peak of the market 2 years before and still generated EBITDA profits of £1.2 million year ending November 2010. The market remains tough though and the need to drive efficiencies further out and avoid future price war that shrinks the profit margin for all involved is very real. Therefore, merging the two companies’ that had directly competing product lines (and paradoxically having headquarters next door to each other) makes a lot of sense.
The new MBL
The acquisition of TrigoldCrystal by MBL will strengthen its market position considerably. Last year MBL had revenues around £5.9 million compared with £5.8 million for TrigoldCrystal. The combined entity is targeted for growth next year and forecasting a combined revenue of £12 million.
The shareholders list will be headed by some of the largest lenders in the market including HBOS and Santander, which will continue to give the organisation access to key decision makers in the market. The two largest private shareholders will be the original founders of Crystal – Jon Whitmore and Patrick Shuker who, despite taking 65% of the deal in cash and loan notes, retain substantial holdings.
Undoubtedly its lender shareholders open up a lot more opportunity to tighten the integration between adviser mortgage sales processes and the lender sales processes. They also plan to offer a wider set of services to lenders utilising the Momentum platform to offer a point of sale solution that can be used in branch, call centre and internet channels.
Unifying the Product Strategy
The challenge will be to produce a unified product strategy that will help drive these efficiencies. Other vendors, most notably 1st The Exchange N4, have so far failed to unify products or brand seamlessly. Early indications are that MBL will continue to support the TrigoldCrystal products as well as its own products. In the Mortgage Sourcing space this makes some sense as there are almost ‘religious’ decisions made as to which product is used. The data collection can be unified and a single data store,
created from which both products are driven. The end user can then select the chosen application to access the newly formed central database – either Trigold’s Prospector or MBLs Mortgage Brain. However, the business case to maintain the two systems going forward is as yet unclear to me.
The Trading Platform from MBL has always headed the market and adding this to both Prospector and Mortgage Brain makes a lot of strategic sense.
The CRM systems overlap clearly in functionality but are distinguished by the MBL product The Key being an offline system and TrigoldCrystal’s Momentum being an online system. The products are targeted at slightly different user bases as well. Momentum’s sweet spot is the corporates while The Key is more aimed at the Individual and directly authorised brokers.
Indeed one approach that could be explored is to utilise The Key alongside Momentum as its offline component. Having the two systems operate as two modules from the same suite of products is, however, more than simply exchanging data. Processes, usability and integrations all need to be aligned as do the softer items like pricing, branding and marketing. None of this is unachievable but hard decisions will need to be made based on sound business principals and not history or ownership.
Merging the two sets of employees will be the next challenge. As mentioned, both have offices in Bromsgrove, so merging staff in the West Midlands could be relatively painless.
However both companies have southern offices and consolidation presumably will have to happen at some point.
The Company will continue to be led by Mark Lofthouse although he will be joined on the board by Jon Whitmore, Patrick Shuker and initially Martin Colyer. Our understanding is that Jon will reduce to a non-exec role after 6mths and Martin will step down after a few months. The change maintains an element of the TrigoldCrystal management team which will be critical in creating a stress free integration.
The announcement is the third big IT merger or acquisition in the last year. N4’s acquisition by 1stThe Exchange was followed by the proposed takeover of Focus by Standard Life. We expect further consolidation in 2011 and many are enjoying the guessing game of who will be next!