Deeper Thoughts
It’s M&A season again! – April 13th, 2021

Issue #68: It’s M&A season again!

In stark contrast to the news last year at this time, it seems you can’t open an email or scan a mortgage news website these days without seeing yet another acquisition, investment or even IPO. It all makes sense. 2020 saw historic amounts of revenue in the mortgage industry, inflating profits and payrolls alike. And no matter how good 2021 may be, it simply won’t be as good as 2020. Enter, then, the dynamics of consolidation. 

One of the many ways we’ll be seeing the market shrink and the number of “players” decline is through M&A. There may not be a better time to sell than after a year of record revenue. And while the sellers will be selling high, the buyers will have the cash on hand to extend their empires and decrease competition. All of which…will lead to tighter competition for what’s left of the pie.

Competition is generally heightened during a purchase market, too. The fish will not be jumping into the boats any longer. So the most capable will bring home the biggest hauls. 

Yet another reason why an efficient; integrated; strategically planned workflow and production assembly line is so vital for success. We’ll skip our usual mention of margin compression for now. How about increased profitability allowing for the offering of a larger product mix? How about a tighter, faster production pipeline leading to decreased fall through rates? What about a better integrated production platform allowing for the proper distribution of staffing, instead of having to throw people at each chokepoint?

The arguments are many for the buyers and sellers, too. For buyers, it’s hard enough to integrate multiple businesses on the basis of structure, culture and business model alone. But if the firm or firms being acquired have a train wreck of a production process or outdated or inappropriate tech stacks? If that’s not reason for the transaction to fall through during due diligence, the buyer has a massive headache on his or her hands. As for sellers, the same principle applies. If you’re hoping for top dollar for the business you’ve worked so hard to build, it’s going to have to function at a high level with new owners and top executives—something which doesn’t happen without a lot of time and additional  (unplanned) investment after the purchase when the previous owner has neglected the operations side of things.

We probably won’t be hearing too much about the integration of businesses involved in all the M&A fun this year. The story’s not as sexy, and nobody’s in a hurry to share their challenges for all their competitors to enjoy. But whether your buying, selling or simply competing for share—again, it’s the little decisions that reap big results (good or bad) in this kind of market.

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