Consolidation and cultural alignment: the sector’s next challenge – Bohanna
Times of strife can be great incubators for the new kids on the block, and a host of businesses, new and old right across the spectrum of lending, brokers, and servicers, flourished. With this success followed consolidation; the last two years have seen many merger and acquisition (M&A) deals struck across the sector.
Mortgage industry stalwarts will be very familiar with change. Artificial intelligence (AI) has been harnessed to automate credit checks and value properties, regulation remains a hot topic and one to watch as we enter an election year.
But it is these mergers, the potential culture clashes that will rumble on and cause leaders the biggest headaches if they get consolidation wrong. And it looks as though it’s here to stay, particularly for the so-called ‘cottage industry’ brokerages.
Cultural alignment is often spoken about in the context of M&A – when two worlds collide. An enormous effort is put into getting the comms right when the merger happens, appeasing shareholders, undertaking Transfer of Undertakings (Protection of Employment) (TUPE) and other HR processes to ensure a smooth transition.
Company-wide welcome speeches from the CEO are given, setting out the vision for an exciting new era, but it’s rare for any further steps to be taken to integrate two disparate parties save for perhaps an away day or all-staff event.
The message is clear – just get on with it. But this attitude breeds contempt, and any hard-won trust can evaporate rapidly.
A thought-out process
So, what is cultural alignment? And how do you get it right?
Very simply, it’s having the right people, doing the right thing, at the right time. Being culturally aligned is an evolving process that must be baked into any business strategy. In fact, your strategy is essentially redundant if your culture is broken.
A report from Gartner in 2018 found that when everyone is aligned, there is a nine per cent improvement in revenue goals, and a 22 per cent increase in employee performance.
Supporting and guiding staff is key in uncertain times; while you can’t control external factors such as interest rates and the cost of living crisis, you can make an effort to shape your culture so that you can weather the storm.
Be realistic about what your goals are and how you want to achieve them. Be intentional about what your priorities need to be and then relentlessly focus with a solid change growth strategy. Measure it regularly to track and adjust.
What are your values? Hire people who embody the qualities and ethos you want for your business, and shout about who you are so you can attract the best team. Have certainty about what your purpose is, and indeed any red lines, so that you can make really clear decisions.
Keep measuring your culture – feed and nurture it. Be flexible and adapt and listen actively to what your team tells you, and invest in good training and management.
Change is afoot for everyone involved in mortgages – but it is possible to positively shape the outcome.
M&A among financial firms to ‘rebound’ in 2024 ‒ EY
Analysis from EY, which it shared with City AM, showed that last year just 273 deals involving financial services firms based in the UK were agreed. That’s down by almost a tenth on the 301 deals which went through in 2022, and represents the lowest figure in almost a decade.
It’s not just the number of deals that has declined, but the value too. The total deal value for 2023 came to £12.1bn, the lowest figure since 2014 and a significant drop from the £14.9bn recorded in 2022.
The number of foreign businesses acquiring UK firms dropped from 65 in 2022 to 54 in 2023, with the total value sliding from £7.7bn to £6.3bn. Meanwhile the number of UK firms buying overseas targets dropped from 69 deals to 66, with values almost halving from £3.2bn to £1.7bn.
According to EY, the prospects for deal making took a hit last year as a result of rising interest rates and inflation, as well as concerns around the stability of global banking.
However, with rate cuts likely in both the UK and US, this could drive greater activity levels in mergers and acquisitions, EY has suggested.
Tom Groom, global client service partner at EY, said that while many of the “headwinds” present in 2023 are still around, the fact that interest rates are projected to fall in 2024 should lift market confidence.
He added: “As a result, we anticipate M&A activity to increase throughout 2024 as firms look at new ways to innovate and grow in this improved economic environment.”
EY’s forecast comes after brokers suggested that consolidation among mortgage intermediary firms was “inevitable”, while there have also been predictions of greater consolidation among networks.
Royal London acquires Responsible Life and Responsible Lending
The firms are part of the Responsible Group and the acquisition is subject to regulatory approval.
It will build on Royal London’s existing 40 per cent stake in the businesses. The transaction will allow Royal London to support Responsible Group deliver later life solutions and expand in the market.
Barry O’Dwyer, group chief executive of Royal London, said: “This transaction strengthens our support for advisers and customers as they look for solutions in funding later life needs. We believe this market has a lot of potential as it offers customers additional choices at retirement, especially those who have property wealth but insufficient pension savings to support their desired standard of living.
“Later life lending is complex by nature and requires specialist advice. Royal London is keen to play a role in ensuring high quality advice is an accessible option for those who would benefit from accessing the equity in their home.”
Carlton Hood, chief executive for the Responsible Group companies, added: “I am delighted that the Responsible companies are becoming part of the Royal London Group and will benefit from the stability of being part of the UK’s largest life, pensions and investment mutual.
“We will work with colleagues at Royal London to bring the consideration of pension wealth and property wealth together for advisers and clients, and to ensure the advisers we support, and the customers they serve, are able to access the best range of later life lending solutions for their retirement needs.”
Fintel snaps up VouchedFor and AKG in £9m deal
VouchedFor was purchased in a part debt funded transaction with a net upfront cash consideration of £7.5m – £6.5m of this was drawn from the group’s £80m revolving credit facility.
It was agreed under a contingent earnout arrangement, meaning VouchedFor will receive a payout if certain performance targets are met. This will be based on recurring revenue over the next two years and is capped at £10m.
The review site serves more than 5,000 intermediary clients and the acquisition is expected to broaden Fintel’s services to the advice sector. VouchedFor also recently launched an ‘elevation’ product to help firms monitor their Consumer Duty compliance.
The transaction for AKG was funded wholly from cash reserves with a net upfront cash consideration of £1.6m. There is an up to £400,000 contingent earnout based on certain trading criteria being delivered in the first three years of ownership.
Fintel’s subsidiary Defaqto will draw on resources from the parent company to invest in AKG and support its distribution.
Fintel said the acquisitions supported its aim to improve the retail financial services market to promote the value of advice and build consumer trust.
It is the firm’s third and fourth acquisition this year, following its purchase of learning and development provider Competent Adviser and tax specialist Micap.
‘Resilient earnings’ for this year
Fintel also provided a trading update with this announcement and said the core business continued to “deliver resilient earnings” in line with expectations for 2023.
It said the “ongoing pressures” in the UK housing market had been offset by its progress in software license sales and acquisitions.
Matt Timmins, joint CEO of Fintel, said: “Our positive trading momentum has continued into the second half, with continued growth in SaaS and subscriptions revenues, supported by our resilient, diversified revenue base.
“VouchedFor and AKG are two market-leading businesses which are highly complementary to our offering and share our vision. VouchedFor is the UK’s standard bearer for trusted advice while AKG has been at the forefront of financial strength ratings and consultancy for over 20 years. Both have strong adjacencies in terms of our capabilities and customers, and we look forward to further developing their compelling growth prospects.
“We continue to deliver growth organically and make progress consolidating the fragmented software market, providing efficiencies for advisers and creating better outcomes for all participants. With a strong merger and acquisition pipeline, underpinned by our balance sheet and cash position, we are confident in making further strategic progress.”
Arrow Global acquires Maslow Capital
Arrow Global specialises in credit and real estate. It purchased a minority stake in Maslow Capital in 2021 and over that time, the lender’s loan book has expanded.
Maslow Capital was founded in 2009 and offers loans ranging between £10m to £300m to small and large residential developers.
It has provided finance for developments with a value of over £5.1bn, accounting for around 17,500 units across 257 projects.
The acquisition is expected to strengthen Arrow’s lending strategy and existing investment as well as expand its lending across the UK. Maslow Capital will continue to be led by chairman Marc Rose and CEO Ellis Sher, who will oversee the expansion of its reach across Europe through Arrow’s network.
Zach Lewy, group CEO and CIO of Arrow Global, said: “Arrow invests across European geographies, asset classes and positions in the capital stack. To execute this strategy, we have developed our geographical and asset class expertise. Maslow is an accretive addition to our existing direct lending strategy which includes specialist mortgage and term products through RNHB.
“Being part of the Arrow platform will allow Maslow to expand its services across Europe. We are delighted to announce the full acquisition.”
Marc Rose and Ellis Sher, chairman and CEO of Maslow Capital, jointly said: “We look forward to leveraging Arrow’s deep platform capabilities across Europe and to develop Maslow into a leading pan-European real estate finance provider.
“This acquisition marks the beginning of our broader strategy to offer adaptable, innovative, and timely real estate financing solutions throughout Europe’s living sectors, using Arrow’s extensive resources and capital to create value for all stakeholders.”
Newcastle BS and Manchester BS issue update on merger
In a statement, Manchester Building Society said that the merger would give greater product choice to savers and borrowers, as well as interest rates that are better than or in-line with their current deals.
Members would also benefit from being part of a mutual that “continues to grow strongly” and is the eight largest in the country.
It added that Manchester Building Society’s employees, barring executive directors, would have “the opportunity to further their careers as a valued and continuing part of a larger organisation”.
Both parties said that the merger would lead to “greater resilience and additional capital strength” and enhance Newcastle Building Society’s growth strategy.
The statement also said that a Manchester base could “provide additional opportunities for a pipeline of talent” to Newcastle Building Society, including its fintech business Newcastle Strategic Solutions.
Newcastle Building Society: Move benefits both sets of members
Newcastle Building Society’s chief executive Andrew Haigh said: “The merger presents an opportunity for both our Societies to come together in a way that truly benefits both sets of members.
“As a financially robust, purpose-powered business, the move supports Newcastle Building Society in delivering our growth strategy at greater scale and impact, and in a way that offers opportunity for members, and colleagues from both organisations.”
Manchester Building Society’s chairman David Harding added: “Manchester’s board strongly believes that this merger is in our members’ best interests.
“Our members will become part of a larger, financially robust Society that can offer a range of products and services we are unable to match as a standalone entity whilst providing staff at Manchester with long-term opportunities within the Newcastle Building Society and Group.”
Manchester Building Society was formed in 1922 but has not undertaken any new lending since 2013.
The mutual has close to 11,000 members and no branches. It employs 44 people and as of the end of last year it has total assets of £200m subject to an audit, making it the 41st largest building society in the UK.
The Manchester board said that its current capital and liquidity position was “regulatory-compliant” but it “lacks the scale and resilience to endure major financial or economic stress without raising additional capital”.
The board added that as a standalone firm it would incur “recurring losses which will deplete capital reserves each year”.
PRA approval granted
The Prudential Regulatory Authority (PRA) has approved the request by the Manchester and Newcastle board to transfer Manchester’s engagements to Newcastle so it can proceed by a board resolution, and a vote by members of either society will not be required.
The next steps of the merger are for the boards of both societies to pass a resolution to proceed with the merger, and then for the PRA to confirm the merger.
If the PRA decided to confirm, then the merger is expected to come into force on 1 July.
If the merger does not proceed as planned then there may be requirement for one of the societies to pay the other’s external costs up to £1m.
Manchester members will be sent a merger notification statement at the end of March.
Broker CMME bought by tech firm OneDome
CMME is broker that arranges around £800m of mortgages a year. As part of the deal, OneDome also acquired CMME Group’s wealth management unit, a business with £130m of assets under management.
CMME’s team of 65 will join the OneDome Group as part of the deal.
OneDome is behind eHomeBuying platform – a ‘one stop shop’ digital homebuying experience.
The acquisition of CMME will allow OneDome to significantly increase its mortgage brokerage capability and service its website clients, the firm said.
This is the second acquisition by the tech firm after buying Nethouseprices.com in 2019, to make land registry transaction data more easily accessible to UK consumers.
OneDome: ‘Property market…has experience limited impact from tech’
Babek Ismayil, chief executive of OneDome said: “The property market is one of the few areas which has experienced limited impact from technology.
“The homebuying journey isn’t fit for purpose and has had little breakthrough innovation since the launch of classifieds like Rightmove in the early 2000s.
“Our goal is to make homebuying a faster, simpler and more enjoyable experience for everyone.
“We believe that our eHomebuying platform will change how we buy properties in the same way that e-commerce platforms changed how we shop forever. This is only our first acquisition of a mortgage brokerage, and we are in discussion with several other target firms.
“Our five-year goal is to service 10 per cent of all property purchase and sales in the UK.”
AFM Wealth secures £5.3m OakNorth Bank loan to support IFA acquisitions
AFM Wealth is the holding company for Absolute Financial Management and was launched in February 2020 by director Philip Hughes. Absolute Financial Management was established in 1999 by co-founders and directors Mark Eaton and Spencer Watt. The firm provides mortgage, retirement, investment and pension advice.
Absolute Financial Management has seven offices across the South East region, 23 advisers and over 3,000 clients.
AFM Wealth has acquired six IFA firms since February last year including Cheesman and Groves, Manor Hurst Associates and most recently, Granite Financial Management. All firms deliver advice for retirement, mortgages, and financial planning.
AFM Wealth plans to acquire more firms this year.
Philip Hughes, director of AFM Wealth, said: “Since Absolute Financial Management’s launch over two decades ago, it has managed to build an extensive client book, serviced by a dedicated professional team ensuring continuity and quality of advice. We continue to operate under the core value of ‘our advice is our company’ and as a result, the business has thrived.
“The capital from OakNorth Bank will provide us with the financial firepower to accelerate our acquisition programme and be well-positioned to support customers through the challenging months and years ahead. Like us, the OakNorth team put the customer experience at the heart of everything they do, and this was clear from the first interaction we had with them.”
Stewart Haworth, director of debt finance at OakNorth Bank, added: “The successes that Mark, Spencer and Philip have managed to achieve to date come as no surprise, given their vast experiences gained over several decades of working within the UK’s financial advisory space.
“With the sector set for significant growth over the next five years, AFM Wealth is in a prime position to capitalise on this opportunity. We’re excited to be working with the team and look forward to continuing to support them on their growth journey going forward.”
Castle Trust in ‘early discussions’ to takeover PCF Bank
Its update to the London Stock Exchange said under the possible all share offer, PCF shareholders would have a minority position in the combined group.
The group includes the subsidiary PCF Bank, which offers bridging loans, asset finance loans and retail banking services.
It also has the brands The Asset Management Corporation and PCF Business Finance, which issues development finance loans, SME loans and lends to property investors.
The announcement was made without Castle Trust’s approval and the bank declined to comment when approached by Specialist Lending Solutions.
PCF said Castle Trust should announce its firm intention to make an offer for the group by 28 June or confirm that it will not bid for the company.
The announcement commenced the offer period according to market regulatory rules.
PCF’s losses soften
PCF also announced its financial results for the year to 30 September 2021. It reported a statutory loss of £3.1m, which was a softening of the £5.1m loss it saw in 2020.
New loan origination amounted to £187m, down from £272m the year before.
The group also announced that the suspension of the trading of its shares ended on 1 April. This was temporarily halted last year after it delayed the publication of its financial results.
At the time, it said it was unable to publish audited results due to “logistical reasons”.
PCF shares resumed trading at 7p, giving the company a market capitalisation of £21.3m.
Together puts itself forward for potential sale – reports
According to Sky News, the firm is being advised by Rothschild and the size of the stake to be sold is under consideration.
The report said private equity firms Cinven and Warburg Pincus had expressed an interest in acquiring a stake in the specialist lender. Both firms declined to provide a statement to Specialist Lending Solutions.
This follows news from last July, when Bloomberg reported that Together had valued itself at £1bn in preparation for a sale or initial public offering (IPO).
The latest report suggests this figure could be higher at around £1.7bn to £2bn, giving the maximum 49 per cent minority share a value of more than £800m.
The lender’s most recent full-year results for 2021 showed its profit before tax rose 59 per cent from £94.6m to £150.3m.
For the three months to December 2021, Together’s Q2 period for the financial year 2022, its loan book increased by 13.8 per cent to £4.4bn. During the same period, its profit before tax rose quarterly from £38.8m to £43m.
Together and Rothschild both declined to comment when approached by Specialist Lending Solutions.