A merger & acquisitions specialist has said brokers need to be realistic when selling their trail books
If you’re looking to exit the industry, chances are you may be looking for a buyer for your trail book. But how do you set a price on your business? Mortgage brokers selling books need to be realistic when it comes to price, a sales, merger & acquisitions specialist said.
Connect Financial Service Brokers CEO Paul Tynan said sellers create a “major issue” for themselves by basing the price on their emotional attachment to the business.
“It’s natural for sellers to over-value their business. It’s been their life, blood, sweat and tears and now selling that lifetime of work is an emotional undertaking – but ultimately it is the current market that determines price.”
Despite the hard work brokers pour into their business, many of the older sellers in particular do not have clients on automated systems, use CRM, or have organized back office data, Tynan said. However, “a lot of people do like buying smaller books because it goes straight to the bottom line profit”, he said.
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While Tynan said many mortgage brokers sell their books through aggregators, he has had an increase in brokers looking to buy financial planning and accounting books. He said this is a growing trend – like the Yellow Brick Road model – and it makes sense for the consumer to have all financial needs of mortgage broking, financial advice, accounting and financial law under one roof.
“We have a very narrow focus with all our professional services, but it makes sense to have them all in one spot. It’s pretty easy to work together, put the ‘one-stop shop’ under one roof.”
However, it is important the consumer does not suffer from accumulating services into such a one-stop shop. Mortgage brokers have been “aggressively” looking for financial planning and accounting books, but many do not have an understanding of what licences and qualifications are involved, Tynan said.
Connect screens businesses and people coming to buy and sell, to make sure they know the realities of the market and that any acquisition will not be detrimental to their clients.
“Buying books is a good thing but it’s important to know who’s who in the zoo, and get to grips with structure and licensing requirements,” Tynan said.
The practices most in demand are well run and efficiently-administered enterprises with solid, sustainable revenue streams supporting a carefully considered target market.
Here are Tynan’s tips when you’re looking to sell:
1. Be realistic when it comes to price
2. Understand that valuation methods are changing
3. Sustainability of income is important
10 trail book questions you must answer
These questions need to be answered in order for a potential buyer to make an offer:
- How many clients do you have and how many own multiple mortgaged assets?
- How many are people who occupy their own home in comparison to property investors?
- Can you easily calculate the mix between fixed and variable rate loans together with the fixed rate maturity dates?
- For those property investors, when does their interest-only period finish?
- What is the average loan or borrower life of your CRM?
- What is the annual maturity profile of the CRM for loan reviews?
- Who are your top 10 mortgage clients and what business risk do these pose if they were to discharge?
- What is your average loan size?
- Is one or a handful of lending institutions dominating your lender panel? Is this a business risk?
- What is your geographic spread?
- Do you have concentration risk in one particular location?
