What are the impacts of the failed takeover? Who will come out best from the renewed rivalry? Who called the deal off – Mortgage Brain or TrigoldCrystal?
Despite what has appeared in the press, I don’t believe it was either party that called the deal off.
The Office of Fair Trading (OFT) process they have been going through to date is fairly innocuous – it takes two to three months and costs around £20,000 to £50,000. Once the takeover bid was referred to the Competition Commission, the scale of the task in hand increased significantly.
The process with the Competition Commission takes five months and can cost as much as £1m.
Such a process simply can’t be justified by businesses the size of Mortgage Brain and TrigoldCrystal.
There was always the chance (or even likelihood) that the bid would be referred to the Competition Commission and the consequences of this were always understood. It is AT8’s view that the agreement signed back in December, therefore, would have included an automatic termination option should the referral to the Competition Commission occur.
In view of the delays, costs, disruption and potential for the deal being blocked, it is likely that both parties would allow the deal to automatically cancel.
The takeover was never popular in the market place and many will be glad to see it fail.
Distributors have been nervous about lack of choice and the power of the lenders that would have owned the combined company. The competitors were concerned over the potential for the combined entity to get its owners to exclude products from other sourcing engines, while partners were nervous of the shift in the power base and the implications that could follow.
Cancelling the takeover doesn’t remove these fears, as it still leaves two dominant suppliers with significant influence upon the market, but it does dilute them.
The renewed competition should also spark innovation as the two separate entities battle to show that they haven’t taken their eyes off the ball and that their proposition is the best one to choose.
The battle over who leads the market is back on.
TrigoldCrystal claims to have 65% of the market with 16,500 licences down from around 18,000 this time last year. Mortgage Brain won’t release user numbers but states it has increased both market share and user numbers across all major products in the past year.
Questions are continually raised about the financial stability of TrigoldCrystal and the failed takeover will only increase such speculation.
TrigoldCrystal are keen to point out that 2010 saw them make substantial EBITDA profits (£1.2m) and pay off most of the loans that the business previously held (due to be completely paid off by the end of the second quarter).
With recurring revenues running at 90%, it claims financial stability is secure. The first quarter of 2011 is, also, apparently looking like breaking records for profitability as well, driven by the success of its web tools.
Mortgage Brain’s financial position is rarely questioned as it has the backing of a number of the largest lenders in the market. It continues to hold substantial market share and serves an important strategic aim for these lenders.
For many the takeover was always likely to meet resistance from the OFT and Competition Commission. The distraction it has caused both businesses has been substantial and there will now be an urgent refocus on their customers’ needs and requirements.
New competitors are starting to emerge.
In the practice management space, we have Irish operator BrokerCRM looking to enter the market while there are also refocused propositions from companies like IntelliFlo and Plum which have typically been positioned as suppliers to the life and pensions market, but now have credible mortgage solutions.
In the mortgage sourcing space, firms like Orbiter and Mortgage 27 are mounting fresh challenges.
TrigoldCrystal and Mortgage Brain have more established propositions than these firms, but they must refocus and drive their businesses forward once more if they are to maintain their strong position.
We have spoken to TrigoldCrystal and it is planning several major product announcements.
One of the more interesting is the creation of a Mortgage Hub to compete with Mortgage Brain’s MTE, replacing its own ETC which never got huge traction.
The Mortgage Hub will not be a hosted electronic application system, but will follow the model of Extranet Linking used more extensively in the Life and Pensions industry. In effect, the sourcing engine will pass off to the lenders’ extranet pre-populating as many fields as possible.
We also expect more development around TrigoldCrystal’s web tools as this is an area we are aware has gained a lot of traction in recent months and we expect new product lines such as GI and protection to be covered by the tools in the near future.
We also understand more announcements around smart phone apps are due too.
Mortgage Brain released several new solutions in 2010, including a new sourcing system, as well as a consumer-facing sourcing system, Mortgage Brain ‘Broker 2 Consumer’ that brokers can incorporate within their website.
Mortgage Brain says it reinvests 40% of its revenue into product development and we will watch with interest to see which new developments come forth next.
Mark Loosmore is from technology consultancy AT8
