Issue #47:

The year of the deal? Unique M&A Spike Another Great Indicator of the Kind of Year 2020 was for the Industry

I came across another interesting article from Progress in Lending Association recently.  It’s well worth a read. Essentially, it touches on the insights of the well-respected Garth Graham (Senior Partner at advisory firm STRATMOR group) on what has become a record year for mergers and acquisitions in our industry.

We already know that historic interest rates and other factors have come together to make the origination volume of 2020 one of the best on record. That, in part, has led to multiple big deals such as the purchase of Ellie Mae, United Wholesale’s massive merger and a surge of IPOs and potential IPOs.

I’ll insert here that we’ve also seen an opening up of the industry, as well. In the past decade or so, it seemed only certain kinds of firms would buy other firms. Now, it’s almost the Wild West. It’s not just growing, mid-sized tech developers being purchased by much bigger developers or “all-in-one” providers (like a title insurer). Growing tech companies are buying similarly sized tech companies and even service providers, for example. Not to mention the increased interest of investors from outside the industry.

It seems only a couple of years ago, we were considering the possibility of industry consolidation as a previous refinance spike was coming to a close and we began to gear up for a purchase market. But how different the two M&A cycles were. When we think of market consolidation, we think of winners and losers; the large (or mid-sized with good backing!) eating the small and so forth. 

However, Graham points out that this M&A cycle is more of the large eating…well, the large. The sellers are negotiating from positions of strength. Additionally, he observes that we’ve seen greater interest in independent or non-bank mortgage lenders from “outside” equity investors.

It’s a great time to be an independent mortgage banker. Or a growing firm of any type that serves the mortgage industry. And that’s a headline that’s gotten lost in the shadow of things like COVID, the continuing GSE privatization drama and, obviously, the continued, jaw-dropping rise of refinance origination volume.

This is definitely something to keep an eye on when (whenever that is) refinance volume finally starts to stabilize or decline a bit. How will the IMBs react, and will we see a different kind of M&A surge?  Just something interesting to consider.

Ideas or suggestions for future topics? Have something you’d like to say to the readers of Deeper Thoughts? Please share with me at jpaolino@lssoftwaresolutions.com.