In recent discussions surrounding the evolving mortgage market, mergers and acquisitions have emerged as viable strategies for mortgage company owners seeking growth while navigating a challenging landscape. Dan Hanson, the executive director of enterprise partnerships and acquisitions at loanDepot, shared insights during a three-part podcast series, addressing crucial questions concerning the timing and valuation of selling a mortgage company, as well as the cultural implications associated with such transitions.
In the first instalment, Hanson elaborated on the pressing circumstances that may prompt an owner to consider selling their mortgage business. He noted a significant concern for owners is the outlook for long-term interest rates, predicting they are unlikely to decrease markedly in the coming years. "Long-term interest rates won’t go down substantially for the next few years. Our bond market is affected primarily by government debt, which is high and likely to grow," he stated. Furthermore, Hanson indicated an expectation for the market to remain in a purchase-style environment for at least another year or two.
The financial aspects associated with originating loans present additional hurdles; costs continue to rise due to increasing fees related to appraisals, credit reports, and digital verification processes. The refinancing market's projected market share is anticipated to remain below 10%, further complicating profitability for many companies. In this context, Hanson posed a pivotal question for owners: whether operating under diminishing returns—earning marginal profit while bearing significant risks—remains sustainable. He advised that if owners are unable to achieve reasonable profits, it may be prudent to contemplate consolidating with a larger firm or selling their business rather than waiting for market conditions to improve.
The second episode of the podcast focused on strategies for owners to enhance their company's value in the eyes of prospective buyers. Hanson differentiated between two main types of sales: stock sales and asset sales. He explained that a stock sale involves acquiring a company’s stock along with its liabilities, whereas an asset sale allows the acquisition of only essential components such as licenses and operational value, absolving the new owner from any responsibility for past loans. The assessment of a company’s future potential is paramount, with acquirers needing to understand the expected business contribution over the subsequent three years. Additionally, the compatibility of the buyer and the seller's business models is crucial for a successful transaction.
The series concluded with a discussion on the cultural ramifications of mergers and acquisitions. Hanson acknowledged that change is inevitable during this process, impacting technology use, benefits, and operational policies. "The reality is there will be change," he remarked, cautioning that employees might resist such transitions, fearing a loss of influence. He suggested that while organisational shifts can be challenging, they also bear significant advantages, primarily through the mitigation of risk for owners. Engaging employees in the integration of new brands, along with incorporating successful practices from the acquired company, can ultimately enhance productivity and overall performance.
In summary, these discussions illuminate the complex landscape facing mortgage company owners as they evaluate their options against a backdrop of rising costs and uncertain market conditions. The insights provided by Hanson underscore the importance of strategic planning and understanding the dynamics of mergers and acquisitions in enhancing business value and navigating potential transformations.
Source: Noah Wire Services