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Specialist lending market remains attractive with strong acquisitions pipeline – Livingstone

  • 28/08/2018
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Specialist lending market remains attractive with strong acquisitions pipeline – Livingstone
A strong pipeline of mergers and acquisitions activity in the specialist lending market is likely to continue into the latter part of 2018, according to advisory firm Livingstone Partners.


The consultant said the market remained attractive to investors with non-bank lenders unusually valued more highly than their mainstream competitors.

It noted that although rates had fallen slightly within bridging and development finance, funding costs were also falling and that this was providing a stable, attractive margin for investors.

“The deal volume in our part of the market and this year to date is significantly ahead of last year and the pipeline for what remains of Q3 and Q4 is certainly quite strong,” partner Nick Field (pictured) told Specialist Lending Solutions.

“There will be a couple of specialist finance transactions in Q4, I will be surprised if there aren’t and overall we’re not seeing any general slowdown.”

This may appear surprising given the apparent sharp fall in bridging rates, but Field noted this was not necessarily the correct impression and added that funding was still available cheaply from capital markets.

“It’s an interesting environment as yields are coming down but only slightly and specialist lenders as a group saw about a 16bps reduction in our most recent analysis, which is relatively limited,” he continued.

“At the same time we’ve got funding costs for most specialist lenders coming down, even for some of the banks because of their funding mix.

“So for specialist lenders the net effect of yield compression and falling funding costs is one of pretty stable interest margins, which is slightly counter-intuitive to the current market expectation.”


Wholesale funding influence

Field added that wholesale funders were not losing interest in the sector.

However, he warned that the current market of around 100 bridging lenders was unlikely to be sustainable and would see some concolidation in the coming years.

“Everything we’re seeing in the availability of wholesale finance and also interest from financial investors and acquirors in differentiated specialist lenders is very positive,” he said.

“Even in the last six-to-nine months we’ve had a number of new lenders entering the wholesale market and its clearly still attractive.

“But if you look at the number of new entrants to bridging over last couple of years, what you do wonder is whether a market with this many participants is sustainable?

“The market doesn’t want or need 100 bridging lenders who each have a £10m loan book because it’s not efficient – there’s a lot of service and administration in running these specialised businesses so you might think that in five years’ time the bridging market will have fewer participants,” he added.


Cooling broker market

While interest in lenders has remained quite hot, broker M&A activity has cooled slightly.

Field noted that acquisitions of broker firms have reduced in the last 12 months with purchasers being more discerning about the businesses they purchase.

“Good quality broking businesses in an attractive market have always consolidated,” he said.

“The market has become more selective over the past 12-24 months because people are conscious that there’s a bit more macro-economic uncertainty – people are a bit more cautious.

“Good quality businesses are still attractive, it’s the marginal businesses which two or three years ago which probably would have been acquired that are not now,” he added.




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