Article originally published on MReport.com and in the March 2021 issue of MReport.
Strong home sales, low interest rates, widely available capital, and aging business ownership have led to a robust mortgage IPO market in recent months.
According to STRATMOR Group, before the end of 2020, equity investors or private companies held an interest in 17 of the top 25 independent mortgage bankers, accounting for more than 40% of the total IMB market.
Existing-home sales closed 2020 on the upswing, reaching their highest level since 2006, according to data from the National Association of Realtors (NAR). Interest rates remained at historic lows, with no indication from the Federal Reserve or the bond market that rates would increase any time soon. Moreover, private individual investors in these companies are reaching ages where they are looking to cash in at least some of their investment, according to mortgage industry experts.
“The M&A deals we’re seeing are game-changers,” said Garth Graham, Senior Partner, STRATMOR Group. “They are record-breaking deals that have investors outside the industry putting money into mortgage banks that are generating solid profits.”
“In years past, we saw strong companies buying weaker counterparts, but this year, we’re seeing strong buying strong,” Graham added. “Buyers are willing to buy at a higher valuation because the entire market benefits from production momentum and because they see a multiple in the value they can add, albeit with stronger technology, better capital markets execution, or consolidation savings.”
“The investors are shrewd,” said Terry Ammons, Partner at Wipfli LLP. “The mortgage market showed how strong it was in 2019 and 2020. The overwhelming desire to tap into that earning stream is why the mortgage IPOs are happening now. You want to sell when the market is high.”
“It’s all about current valuation,” said Joe Camerieri, EVP, Mortgage Cadence, who previously worked advising companies and investors on mortgage company valuations. “Things have changed dramatically since the onset of COVID.”