Mergers and acquisitions (M&A) in the mortgage industry are on the rise in 2022, and it’s expected to continue into 2023, according to STRATMOR Group’s October 2022 Insights Report.
“By the end of 2022, we anticipate that nearly 50 M&A transactions will be announced or closed,” David Hrobon, STRATMOR Group principal, said.
Hrobon also penned STRATMOR’s InFocus Report Consolidation in the Mortgage Industry: M&A Strategies for Lenders.
The strategic plans lenders were using in 2022 may not have been based on the right assumptions, Hrobon wrote in the report. “2022 was difficult, at best, for residential mortgage companies to prepare for and develop their annual plans. It is turning out far differently than most expected.”
This is due, in part, to the changes the industry experienced this year:
- Independent mortgage banker average performance is about break even.
- Volume is predicted to be down 50 percent from 2021 levels and 2023 projections are down a bit more.
- Net production income is trending towards its lowest point since 2018.
Hrobon said there is plenty of opportunity for both buyers and sellers, but structuring good deals is harder now than it was in previous years. Lenders that sold companies in 2018 or 2019 found they had a good amount of flexibility. Today, there is almost no margin of error in M&A deals.
“STRATMOR has been pointing to increased M&A activity for over a year and, in fact, that’s exactly what we are seeing in the market now,” Hrobon said. “It is a good idea for lenders to continually evaluate their options, and a well-qualified advisor can lead a lender through the process to ensure that everything important is taken into consideration. It is never too late to take a data-driven assessment of your company’s market position.”
Buyers, according to Hrobon, are searching for synergy with mortgage companies, and they’re still willing to pay well for it if they can find a seller with a similar culture and business model.
But potential buyers are being very careful, Hrobon wrote. Buyers know the way to drain value out of an “M&A event” is to combine two firms that do not match up culturally. Because cultural alignment is one of the most important ingredients in the success of a transaction, both buyers and sellers must fully understand what their own culture is before they can determine whether a potential deal makes sense.