Acquisition of 80% interest in First Mortgage

 

The information contained within this announcement is deemed to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014.  Upon the publication of this announcement, this inside information is now considered to be in the public domain.

 

18 June 2019

MORTGAGE ADVICE BUREAU (HOLDINGS) PLC

("MAB" or the "Group")

Acquisition of 80% interest in First Mortgage Direct Limited

Mortgage Advice Bureau (Holdings) PLC (AIM: MAB1.L) is pleased to announce that it has agreed to acquire 80 per cent. of the entire issued share capital of First Mortgage Direct Limited¹ ("First Mortgage" or the "Business") for an initial cash consideration of £16.5m (the "Acquisition"), valuing the Business at £20.6m. The Acquisition is expected to be significantly earnings accretive in the first full year following completion and thereafter.

¹ First Mortgage has one trading subsidiary, Property Law Centre Limited, which is wholly owned.

First Mortgage

First Mortgage is one of the UK's leading omni-channel, independent mortgage brokers, with a particularly strong presence in Scotland, where the Business was originally established over two decades ago.  The Scottish based business now comprises over 90 highly productive employed mortgage and protection advisers and has already commenced its expansion south of the border.  Customers can access mortgage advice at its head office premises in Edinburgh, through one of its 14 mortgage shops, as well as remotely over the telephone, a channel through which First Mortgage has driven significant growth over the last few years.  First Mortgage is one of the very strongest and most forward-thinking businesses in the UK mortgage intermediary market, with customers' current and future needs both integral to its strategy.

 

Under the direction of its highly regarded management team, First Mortgage has developed strong direct to consumer lead generation expertise.  The Business also now acquires over half of its new customers via referrals from its existing customer base, as well as having outstanding repeat business levels.  Both factors have driven its highly reputable brand presence which is substantiated by very impressive customer reviews. 

 

First Mortgage is highly regarded in the new homes market in Scotland, making it complementary to MAB which also holds a significant presence in this sector more widely across the UK.

 

First Mortgage is a 'client fee' free model, with a strong track record, whose pace of growth has increased over recent years.  Like MAB, First Mortgage focuses on ensuring that it meets customers' protection needs and approximately half of its revenues are derived from protection products, hence driving strong margins.  In 2018, First Mortgage arranged c. £2 billion in mortgage lending for its customers.  In the nine months ended 31 December 2018², First Mortgage achieved revenue of £10.2m and profit before tax of £1.5m.  The net assets of the Business as at 31 December 2018 were £2.9m, with cash balances of £3.5m.  The Business has not declared a dividend since 31 December 2018.

 

² First Mortgage has prepared accounts for the nine months to 31 December 2018, following First Mortgage changing its accounting reference date from 31 March to 31 December, to align with MAB's accounting reference date.

 

Acquisition rationale 

 

The Directors believe that the Acquisition presents MAB with significant additional growth opportunities. The Acquisition will enable MAB to further grow its adviser numbers and market share, in addition to its core growth plans, and will also add another highly respected and leading mortgage broker to the Group. First Mortgage's omni-channel growth strategy, and particularly its telephony strategy, will be leveraged further through the planned deployment and rollout of MAB's new technology, building on the expertise in both businesses and enabling the acceleration of the respective businesses' ambitious growth plans.

 

The Acquisition is expected to be significantly earnings accretive in the first full year of ownership and thereafter.

 

Acquisition consideration

 

MAB has agreed to acquire 80% of the entire issued share capital of First Mortgage Direct Limited from Ian Robert McGrail (Managing Director) and his father Robert Lawrence McGrail (Director) (the "Vendors"), for a cash consideration of £16.5m.   Ian Robert McGrail and Robert Lawrence McGrail respectively own 50% each of the Business. Ian Robert McGrail will retain a 20% shareholding in First Mortgage and remain in the Business in his current role and Robert Lawrence McGrail will be divesting in full and leaving the Business.  MAB will fund the cash consideration from a mix of its own cash resources and a partial drawdown on its new debt facilities (described below).

 

MAB has also entered into an option agreement with Ian McGrail (structured as a put and call option), to acquire the remaining 20% of the entire issued share capital of First Mortgage from Ian McGrail between 2024 and 2030, at a valuation for the Business of eight times the prior year's audited profit before tax, adjusted for distributable reserves and regulatory capital requirements, for a minimum of £4m and up to a maximum total consideration of £10m.  Under the terms of the option agreement, MAB can, at its discretion, satisfy up to 75% of the consideration through the issue of new ordinary shares in MAB.  Any new ordinary shares issued to satisfy this consideration will be subject to orderly market provisions.

 

Completion of the Acquisition is expected to occur on 1^st July 2019. 

 

New debt facilities and dividend implications

 

MAB has entered into an agreement with NatWest in respect of a new revolving credit facility for £12m.  It is MAB's intention to repay the drawn down proportion of this debt facility as quickly as practicable.  MAB's practise over recent years has been to pay out approximately 90 per cent. of its profit after tax as dividends.  In order to repay the drawn down facility, MAB will reduce its dividend payout on the enlarged Group from 90 per cent.  to 75 per cent.  This will be effective from MAB's final dividend payable in respect of the year ended 31 December 2019.

Commenting on the Acquisition, Ben Thompson, Managing Director, said:

"This acquisition is central and complementary to our strategic objective to grow our market share of new mortgage lending.  First Mortgage is a highly reputable, forward thinking business of significant scale with a clear strategy to deliver further strong year on year growth.   This enables us to pursue at pace our aim to accelerate Group growth through excelling in areas of specialisation, and in particular, building on our omni-channel choice for customers.  This approach best positions MAB to benefit in an evolving intermediary sector.  MAB's new technology developments will further strengthen our capability and ambition in this regard.

I am delighted that Ian has chosen to work with us, to help us both to really accelerate our respective growth plans and am excited at the prospect of making this highly successful and enjoyable for both teams."

For further information please contact:

Mortgage Advice Bureau (Holdings) Plc	Tel: +44 (0) 1332 525007
Peter Brodnicki - Chief Executive Officer
Ben Thompson - Managing Director
David Preece - Chief Operating Officer
Lucy Tilley - Finance Director
Numis Securities Limited (NOMAD and Broker)	Tel:  +44 (0)20 7260 1000
Stephen Westgate / Hugo Rubinstein (Corporate Finance)
Michael Burke (Corporate Broking)          Media Enquiries: [email protected]   The person arranging release of this Announcement on behalf of the Group is Lucy Tilley, Finance Director.