Last year saw a number of mergers and acquisitions occur across a selection of markets, including the alternative finance market. With the rising amount of players in today’s bridging market some have asked whether this merging trend will continue to be on the rise in the industry.
B&C asked key bridging players when the market will begin to crave consolidation and Ashley Ilsen of Regentsmead believes this year could be the case.
“We expect to see some further take overs and mergers this year. There are a number of lenders in the same space doing the same thing, so consolidation is an obvious consequence,” said Ashley.
“They would need to offer something very different or unique. We often hear that the bridging market is full and that only higher LTVs and lower rates could help a new lender gain market share, but in our opinion, a new entrant would need to be quite innovative too, which is always good to see in the lending arena.”
Total Money Management Managing Director, Mo Chishti, also believes consolidation is needed: “There needs to consolidation but for the better, not so that lenders can just take advantage of the market place. A controlled launch is also important and some new entrants to ensure service levels are looked at,”
“The issue is that they are not really adding anything ‘new’ [and] that hasn’t really changed with new lender launches. It’s almost like giving a client a quote and then they take the quote around the market and someone says they will take £50 off. Suddenly its number one! There also needs to be more diverse lenders for people who can’t prove they don’t need the money.
“There is still, I understand, a cherry picking mentality amongst lenders, residentially and commercially, and whilst the ball is in their court, it will remain this way.”
“Since we launched back in 2009, the number of short-term lenders has grown exponentially,” said Jonathan Samuels of Dragonfly Property Finance. “The market is certainly at the point where you would expect more consolidation, for the simple reason that it has become very crowded. The strong will often look for a quick way to grow market share and the weak will look for as profitable an exit as possible. Crowded markets and consolidation tend to go hand in hand.”
Jonathan added that although it is possible, it would be a Herculean task for new bridgers to enter the market, adding that developing a product range in a market that is already innovate and highly competitive, as well as having financial strength, can be seen as strains on a new entrant.
“We would expect to see more mergers for the simple reason that crowded markets tend to trigger M&A activity. Mergers can sometimes be a quick way for companies to get onto the top table, but even then this is never guaranteed,” he added.
Jonathan explained that the bridging market is not one that you can “blag” – “You have to know it, you have to back yourself and your underwriting ability, and you have to have strong funding lines. In short, it's a lot easier said than done and we believe there are a number of Will-o'-the-wisp lenders out there who probably won't last the distance once this dawns on them.”
However, John Waddicker of Positive Commercial Finance stated that he has doubts consolidation of the market will occur this year and believes that specialist brokers should be able to thrive in a crowded market.
This ability to thrive, in his opinion, down to the overwhelming array of options that could confuse non-specialist individuals, heightening their need to seek out an experienced professional for advice.
New bridging entrants looking to take share in a crowded market could survive through sheer determination, as well as being in the right place at the right time.
“Most brokers/ advisors will use a small panel of lenders, with whom they have a good relationship so can be sure of what to expect,” he said, adding: “Perhaps if one of these relationships is stretched and something didn’t go as planned, the broker might then look elsewhere to place their business.”
John added: “Battling for market share can put pressure on BDM’s to over-promise,”
Stephen Burns of Adapt Finance believes there is room for growth in the market, stating that bridging finance, in general, still remains misunderstood by both brokers and clients and can even be considered as “underground”.
He voiced that there is indeed a possibility for mergers this year but these decisions will be based “on territory”.
Stephen believes that the key for new entrants is straightforward: “Lenders have ceilings - the pot can become dry. Simply make funds available and seek new clients,”
Victor J Jannels of ATOM Group believes that it is unlikely that there will be many lender mergers this year in order to consolidate the market, although it won’t be “out of the question”.
“More likely is the arrival of new lenders and several have already announced their intention, or are already here,” he added. “That said, where lenders complement each other, rather than compete, then it makes some sense from an economy of scale point of view.”
“The bridging market has grown in a space that was left wide open by old or existing commercial lenders, why should a market that has spent the last few years opening up consolidate now?” questioned Zed Lorgat of JM Financial.
He explained: “Merging is a tactic used to strengthen market share or audience, and those who feel pushed out should use it to consolidate their position,”
Martin Powell of Heron Way Consultants is adamant that bridging mergers are not a good idea for the market.
“…Each different lender will have slightly different criteria, and mergers will lead to the narrowing of criteria available to borrowers. This will mean that less borrowers will be able to obtain finance which will lead to [a] possible slowing of growth in some areas,” he concluded.
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