STRATMOR Group took an in-depth look at characteristics that maximize seller value in mortgage banking merger and acquisition (M&A) activity. As Senior Partner and M&A specialist Jeff Babcock explained, conditions remain favorable for mid-sized independent mortgage banking companies considering a sale, and there are steps prospective sellers can take to maximize the chances of highly competitive bids from multiple bidders.
“STRATMOR’s recent experience absolutely confirms that there are still many more motivated, well-capitalized buyers for retail origination platforms than there are such entities available for sale,” said Babcock. “For mid-sized, independent mortgage banking companies, the M&A space remains very much a ‘seller’s market. That’s not to say that independents can – or should – simply wait for a suitor to come calling. Rather, there are ways to proactively position themselves to strategically fit with the most motivated buyers—and thereby realize the level of economic value which reasonably satisfies their financial expectations. STRATMOR’s representation of high-performing sellers in recent transactions enables STRATMOR to provide tangible guidelines as to which characteristics will contribute positively to enterprise value, and which materially detract from a lender’s value and marketability.”
In a feature length In Focus piece in this month’s STRATMOR Insights, Babcock and fellow STRATMOR Senior Partner and M&A specialist Jim Cameron detail the specific criteria which come into play in maximizing seller value. This includes quantitative metrics around profitability margins, product mix and compensation plans, as well as more qualitative characteristics dealing with corporate culture, management style and company reputation. The article also breaks out the 10 most unfavorable seller characteristics, which tend to deter buyers, reduce a seller’s marketability and detract from its enterprise value. These run the gamut from potential exposure to regulatory compliance issues or overt pending legal matters, to the makeup of sales forces, ownership structures or production processes.
“The most important takeaway is that lenders should objectively and periodically assess their marketability as part of their strategic planning,” Babcock added. “They should focus in on strengthening those characteristics that build value and build appropriate actions into their operating plans to address any potential negatives.”
This month’s report also looked at a 2016 sample of over 100,000 closed loans using MortgageSAT borrower satisfaction data and found that 81.9 percent of borrowers reported having no problems with the origination process. Of the 18.1 percent who did experience a problem, 13.4 percent reported the problem resolved, and the remaining 4.7 percent said the problem was not resolved. Satisfaction scores varied greatly between these three groups: those with no problems averaged a stellar 95 (out of 100), while those who had experienced a problem that was resolved saw satisfaction plummet to a relatively low 77. Those who saw their problem go unresolved, however, reported the greatest dissatisfaction, with an average score of just 35, increasing the risk of negative feedback by such borrowers to friends, relatives and on social media. STRATMOR’s review of the areas causing problems suggests that a goal of reducing problems to just five percent of originations is achievable. At this level, overall satisfaction increases from a good 89, to an outstanding 94.