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October 12, 2021

Thinking M&A: Is It Time to Act?

What M&A considerations should lenders be discussing with their partners to decide if it's the right time to buy or sell?

No one can ignore the M&A activity that has been changing the face of our industry over the past few years. With more deals closing than we’ve seen in our industry in some time, owners are naturally asking themselves if this is the right time to sell. At the same time, companies that know growth will be harder to come by in the future are weighing their decision to buy.

Having been privy to these conversations in my previous life on the mortgage lending side, I know that there are three primary considerations that lenders are addressing now in regard to mergers and acquisitions. These are the questions that both buyers and sellers need to consider.

1. What assets are on the table? 

For both buyers and sellers it’s important to know what assets are under consideration. This will primarily include the value of loans in the pipeline, mortgage servicing rights, and any loans the seller is holding in their portfolio.

While there are other assets -- physical assets, relationships, human resources, real estate owned for branches -- buyers can’t know the value these assets will hold after the sale. Business relationships can follow the sellers and people can leave for other jobs.

A careful accounting of all assets is very important.

2. How is new business sourced? 

The way a lender comes by new business is important and it changes the way the business is valued. If, for instance, the lender has an institution method of generating new originations, that can be very valuable in a market where leads are harder to come by.

On the other hand, if the lender relies on purchasing leads or distributed retail loan officers. It’s important to remember that after the acquisition, loan officers can leave and take their business with them.

If the company has done the work and invested the resources in effective marketing programs, portfolio retention programs and an organization geared to bring in more business, it will be a better acquisition target.

3. Does the lender understand technology? 

This is one of the most serious considerations for lenders as they evaluate their M&A opportunities. The chances of two companies with the same or even similar tech stacks coming together post merger are very slim. In virtually every case, the two firms have very different approaches to origination technology.

Too often, the acquiring company chooses to stay with its existing technology, imposing the platform on its new subsidiary. This wastes an incredible opportunity. In a merger, management has the opportunity to actually analyze the performance of two platforms that are in production.

By planning in advance to carefully evaluate the efficiency and effectiveness of the various tech stacks in use before deciding which will be adopted by the post M&A enterprise, lenders can make the most of the transaction.

If you’re considering a merger or acquisition and want support in evaluating one or more technology platforms, our experts are standing by to assist you.

By Joe Camerieri, EVP, Client Account Management at Mortgage Cadence

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Mortgage Cadence:
Megan Martin
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