Specialist finance mega-mergers

Specialist finance mergers: A glimpse of what's to come?

Last week, the boards of OneSavings Bank (OSB) and Charter Court Financial Services Group agreed on the terms of a recommended all-share combination.

The boards of the two companies believed that the combination would create a leading specialist lender in the UK with greater scale and resources.

They added that the merger presented an opportunity to maintain two leading, independent distribution platforms to create an “enhanced” proposition to the broker community.

So, how could a major merger like this affect the specialist finance market, and could we see further major mergers in the future?

Bridging & Commercial spoke to leading industry figures to find out. 

What impact could major mergers like this have on the specialist finance market?

Mark Posniak, managing director at Octane Capital, believed it showed that the sector had a huge amount of potential upside for brands and lenders that can cut through the noise. 

“Against that backdrop, it’s understandable that we are starting to see increased M&A activity. 

“I certainly don’t believe that this spells the beginning of the end for smaller players. 

“The specialist lending market is very relationship-based, and some brokers will always prefer to deal with their strongest and most-trusted contacts.”

Stephen Burns, director at Adapt Finance, claimed that in such a “tight space” it was inevitable that companies would merge, and he expected to see more do so.

“If mergers can retain innovative products, I see no change from a broker’s perspective, unless one of the companies was to forgo a niche product not available elsewhere.

“Both [companies] referred to are already large organisations, so no element of personal service should be lost as part of a bigger eventual organisation.

“I do [think], eventually, the space will be covered solely by lenders who offer a complete solution, from acquisition to long term, dealing with all the elements in between — planning gain, refurb, development and so on.”

Sam Le Pard, asset financial adviser at Arc & Co, believed that the current market was sufficiently diverse enough to be able to absorb further similar mergers without being overly affected. 

“Several factors make today’s real estate finance market extremely competitive. 

“There are numerous strong participants serving different areas of the market. 

“These participants are supported by diverse funding lines and they are supported by a resilient underlying housing market. 

“While these conditions remain, I expect that well-considered mergers will benefit the industry by fostering competition and strengthening lenders’ loan books.”

A glimpse of what’s to come?

“This year could see a number of mergers as companies seek to expand their existing business quickly,” claimed Chris Oatway, owner of LDNfinance.

“With specialist funding becoming so diverse and existing lenders spreading their geographical appetite across the UK, it opens up opportunities for new lenders through mergers.

“Mergers can give firms a quick route to market in locations across the UK which they are not currently exposed to and allow new skill sets in different specialisms to be acquired in a team to complement and enhance their existing representatives. 

“To achieve this through organic growth can be time consuming and, with the current pace of growth in the specialist finance sector, this could lead to firms being left behind by more aggressive competitors.”

Miranda Khadr, founder of Yellow Stone Finance, believed that there were always likely to be mergers, consolidation and new entrants in any market. 

“The key for brokers is to maintain good knowledge and relationships [with regard to] the lenders in their sector, or to partner with a specialist that helps to place a deal. 

“Hopefully mergers and consolidation will bring liquidity and a greater product offering to the marketplace.”

Sam mentioned that he would not be surprised to see further concentration, given the number of participants in the current market. 

“If we get a good Brexit deal (or the latest SDLT rise is reconsidered)   and the housing market responds positively, I wouldn’t be surprised to see M&A becoming a viable option for lenders hoping to grow their market share, especially for any lenders with ambitions to list.”

He added that further market concentration could be a good thing. 

“However, that said, I wouldn’t want to see too many of the smaller, nimbler lenders be absorbed by the larger, more established companies looking to grow their market share.”

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