In the final case study of their four-part series, Trail Book Buyers takes a look at the process involved for brokers looking to purchase a trail book.
In the final piece of their four-part series of case studies, James Turk and Mark Osborn of Trail Book Buyers take a look at a transaction from the buyers’ perspective.
As with sellers, buyers present different circumstances and objectives when approaching a transaction. In this particular case study the purchaser was an active broker seeking to acquire a trail book that would achieve specific outcomes.
Scenario 4: Business growth
Type: Aggregated mortgage broker
Location: Melbourne
What was the purchaser looking to achieve?
The purchaser in this case had dual goals. In addition to building their business through the acquisition of clients they also were looking to increase cash flow by growing their trail book.
In order to achieve this they were seeking to use existing cash resources without the need to borrow further funds.
Why was the book a good fit?
Being a small book the purchaser was able to purchase with existing resources without the need to apply for finance.
The broker who was selling the book was retiring. Therefore, risks of churn were reduced and the transfer of clients would be simpler as the reason for having to deal with a new broker was easily understandable by borrowers. With an introduction letter from the retiring broker and our standard non-compete clauses, the purchaser was comfortable with the value in the clients and potential for future drop-offs in the book.
The clients that made up the book were in a relatively concentrated area of Melbourne and a manageable distance from the purchaser’s base.
As the purchaser was not only looking at cash flow from the book but also ongoing relationships with the borrowers, quality information was important. Contact details were available for all clients meaning contact could be made.
How did the transaction proceed?
Upon enquiry from the purchaser we provided them with a profile of the book and trail statements. This information was sufficient for the purchaser to make an assessment of the value of the book subject to due diligence.
Due diligence
The due diligence on a book falls into two categories. The first relates to the verification of information about the book itself. In order to do this the purchaser undertook the following:
For More information about Trail Book Buyers you can visit their website at www.trailbookbuyers.com.au.
As with sellers, buyers present different circumstances and objectives when approaching a transaction. In this particular case study the purchaser was an active broker seeking to acquire a trail book that would achieve specific outcomes.
Scenario 4: Business growth
Type: Aggregated mortgage broker
Location: Melbourne
What was the purchaser looking to achieve?
The purchaser in this case had dual goals. In addition to building their business through the acquisition of clients they also were looking to increase cash flow by growing their trail book.
In order to achieve this they were seeking to use existing cash resources without the need to borrow further funds.
Why was the book a good fit?
Being a small book the purchaser was able to purchase with existing resources without the need to apply for finance.
The broker who was selling the book was retiring. Therefore, risks of churn were reduced and the transfer of clients would be simpler as the reason for having to deal with a new broker was easily understandable by borrowers. With an introduction letter from the retiring broker and our standard non-compete clauses, the purchaser was comfortable with the value in the clients and potential for future drop-offs in the book.
The clients that made up the book were in a relatively concentrated area of Melbourne and a manageable distance from the purchaser’s base.
As the purchaser was not only looking at cash flow from the book but also ongoing relationships with the borrowers, quality information was important. Contact details were available for all clients meaning contact could be made.
How did the transaction proceed?
Upon enquiry from the purchaser we provided them with a profile of the book and trail statements. This information was sufficient for the purchaser to make an assessment of the value of the book subject to due diligence.
Due diligence
The due diligence on a book falls into two categories. The first relates to the verification of information about the book itself. In order to do this the purchaser undertook the following:
- Matching RCTI’s with Trail Commission Reports
- Review introducer agreement between the broker and their aggregator;
- Confirm information provided directly with the broker in relation to client information available at settlement, brokers intentions regarding their business post sale, settlement dates and loan types. Depending on the size of the transaction and the risk profile of the purchaser this can be done via verbal confirmation or a mixture of verbal confirmation and physical verification of data on a random basis. For example a purchaser may wish to select two or three loans at random to verify what details are held.
- A company search to verify owner of the book and business and make sure they match the party signing the agreements;
- Online searches to make sure there are no red flags in relation to the broker or security interest held by third parties.
For More information about Trail Book Buyers you can visit their website at www.trailbookbuyers.com.au.
