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How to create value to attract investors in a broker firm – Marketwatch

  • 29/08/2018
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How to create value to attract investors in a broker firm – Marketwatch
A series of broker market acquisitions has hit the headlines over the last couple of months with networks looking to increase their reach.


With this in mind, Mortgage Solutions asked this week’s Marketwatch panel how brokers should create value in their businesses and the factors that make a firm attractive to a purchaser?

Gemma Harle, managing director of Intrinsic mortgage network believes providing clients with ongoing services that deliver fees month on month will maximise firm value.

Chris Tanner, CEO of mortgage & protection network HL Partnership highlights value can also be measured in the quality of the personnel who lead and make up the business.

Steve Easter, sales director of Fairstone says it is important to understand all the assets within your business.



Gemma HarleGemma Harle, managing director of Intrinsic mortgage network


Mortgage brokers and financial advisers force their clients to think long term about their finances and help them figure out how they can achieve their goals.

However, as we all well know it can be hard to follow your own advice. For mortgage brokers it’s crucial that they think ahead if they are considering selling their business further down the line.

Traditional mortgage business is transactional, which means it is the systems and up to date client information that makes it appealing for buyers.

However, what makes it even more powerful is if there is an ongoing relationship between the firm and the client that can continue after the broker leaves.

There are simple steps that brokers can take to facilitate this.

Mortgage advice is often the first kind of financial advice a person will seek, however, it is the beginning of what is likely to become increasingly complex financial needs including providing for children and planning for retirement.

Given they already have an established relationship, brokers are in an ideal situation to stay in contact with clients and be the first point of contact when future help is needed.

In particular, providing clients with ongoing services that deliver fees month on month, demonstrating a loyal client base and a robust sustainable business model add significant value into a business that investors will be happy to invest in.

Once the preparations are done opportunities are plentiful for mortgage brokers.

Our network facilitates a practice buyout scheme to provide an exit for retiring advisers and we have seen firms that are either looking to expand into the mortgage business or are keen to include a small bank of clients that align to their current client book.



Chris-Tanner-HLPartnershipChris Tanner, CEO of mortgage & protection network HL Partnership


When you strip away the management speak, acquisition of a business in a similar field is just another growth strategy, the success of which is calculated on the potential future monetary value to the group as a whole.

Assessing value is more than just looking at balance sheets and projecting profits and understanding any underlying liabilities.

Leaving aside the other obvious candidates such as fixed assets like property, value can also be measured in the quality of the personnel who lead and make up the business and their continued motivation to engage with the new owner.

The best acquisitions are the ones where the buyer and seller are well matched and there is a positive desire on both sides to do a deal, which was the case with our acquisition of Mortgage Support Network (MSN).

On the other side, buying a struggling competitor or peer company at a discount might also be advantageous as long as there is perceived embedded value and where a projected change of direction can lead to an upward change of fortune.

Investors are looking for a return on investment, pure and simple.

The best investors are ones who take a long-term view and are involved because they can see that the value they seek is more of a marathon than a sprint.

In our case, HL Partnership is privately-owned, which gives us a solid foundation on which to grow. Our acquisition of MSN worked well because we could afford to look longer term to work with them to build value for both businesses.



Steve-Easter-FairstoneSteve Easter, sales director of Fairstone

As no two mortgage broker firms are constructed or operate in the same way, how can we expect all mortgage broker firms to attract the same value?

I think the way to realistically value a mortgage broker firm can only be by using a multiple of profits. However most potential acquirers will also look into the make-up of the business they are looking to buy, to ensure that it is well run.

Most mortgage broker firms, though not all, are run on a transactional basis without a clear proposition to retain clients.

Consequently, it is important to be able to demonstrate evidence of strong client relationships that will ensure your business can show sustainable revenues and profits in the future.

It is also important to look at the assets within your business; who owns the client relationship – the business or the advisers?

Are all your advisers and staff on suitable contracts?

Try looking at your business as if you were the acquirer; can your business accept change? Is there a cultural fit?

Is there a five-year business plan in place that demonstrates growth? Will the acquirer see clear value with an achievable return on their investment?

Remember the biggest valuations are always placed on businesses that are growing.

As a business owner you will need to be able to demonstrate that you have a well-structured company that can deliver both value and profit.

Make sure you are prepared: numbers, numbers, numbers.

Have a realistic profit and loss, balance sheet, cashflow forecasts, number of clients, average loan size, average advice fee, financial projections, and business plan in place.




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