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Star player buying retiring broker businesses 'well above' market rates

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Australian Broker | 22 Nov 2013, 08:27 AM Agree 0
1st Street home loan director, Jeremy Fisher and his team are now buying up select retiring broker businesses - phone numbers, client lists and all - for 'well above' market rates
  • Albert Waldron | 22 Nov 2013, 09:39 AM Agree 0
    So what is "market rate" my understanding is that books are going for around 3.5 to 4 times trail book value... Is Jeremy out buying books above this?
  • Harry Myers | 22 Nov 2013, 10:23 AM Agree 0
    Spin it any way you like hes just another buyer for good trail books. Sounds like a keen buyer too if he is putting this ad out there.
  • Thomas | 22 Nov 2013, 10:45 AM Agree 0
    3.5-4 times annual ongoing revenue? for a finance trail book? Someone is either very silly or taking you for a ride, Albert! That is the top, top dollar that would be paid for the very best insurance book. Insurance is a lot 'stickier' than finance and so generally commands a higher multiple. I can't say that I have heard of anything over 2 times for a very good finance trail book.
  • Albert Waldron | 22 Nov 2013, 11:05 AM Agree 0
    Hi Thomas, so two years income for a customer that if your look after them should stay with you for over 20 years and refer at least 5~10 new clients to you over that period. This is my question.. What is the true value of that client?
  • Fast Broker | 22 Nov 2013, 11:13 AM Agree 0
    I agree with Thomas that 3.5 to 4.0 times is too high for a Loan Book. However, for a good clean book and database from a retiring broker, I would expect to pay anywhere from 2 to 3 times.
  • Davo | 22 Nov 2013, 11:18 AM Agree 0
    I think that this is a great step forward for our industry. A trail book alone is worth little more than face value but as a going concern is worth much more and can be as sticky as any other segment. We just need to assign an appropriate value to it. And who knows, the Banks might even start lending against them.
  • mac | 22 Nov 2013, 02:35 PM Agree 0
    That right... if a normal small business is valued at say 3-4 times profit shouldn't a well run brokerage be worth a lot more because of the trail factor? A quick check and Mortgage Choice is currently trading at a PE ratio of 19 times. So I reckon brokerages should and I empathise should be valued 5-7 times profit (not trail) as long as they are of a big enough size.
  • Thomas | 22 Nov 2013, 03:26 PM Agree 0
    Hi Albert, a client who refers clients is a bonus. The true value of that client is based on the actual revenue generated by the client, rather than the potential to leverage referrals from them. Therefore, the potential to leverage a referral is not something that is actually really worth anything. The trailbook asset is and the business as a whole may have some value. But if like most brokers they are one out, sole traders or operating a company as a sole director/secretary (so one out), the only thing of any real value is their trail book asset. Selling as a going concern in this instance is neither here nor there. In fact, it's less likely another would buy a business with a single broker or two as a going concern as it is a risker proposition than just buying the trail book asset.

    Davo, it's you luck day. There are banks that lend against trail book income!
  • Keen Broker | 23 Nov 2013, 10:46 AM Agree 0
    I'm in SE QLD, lots if experience, and looking to acquire a smallish book. I'm more interested in the database than the modest trails which we all know diminish over time. Tough to find any that are available from brokers wanting to exit for any reason.
  • Melb Broker | 25 Nov 2013, 10:35 AM Agree 0
    I would love to know who other than someone who is now banned from selling loan books is advertising loan books at 3.5 - 4 times. We have aquired many and none have ever been higher than 2.2 times????
  • Harry Myers | 26 Nov 2013, 09:59 AM Agree 0
    But normal businesses are valued at 3-4 times profit. The trail factor does not make a brokerage any more valuable than any other business with repeat custom and the reality is there are lots of trail books bought and sold each year and the going rate is about 2 times. Some as low as 1.2 and some as high as 2.4 but 2 seems to be the average.
  • Old Joe | 27 Nov 2013, 03:12 PM Agree 0
    The Value in the straight trail is around 1.5% and no other data handed over. Any more than this that you sell will be offset by the amount of money it takes to contact the book and service it from there and so far no one has done this very successfully ( Very). You would be better off to buy an accountancy practice and leverage of the customer base for Loans , financial planning and investment advice. You will have a steady stream of revenue from the accountancy practice and any loans and planning will be good money. I have seen guys give away clients and details and the incoming broker spent more time telling his mates how much he would make than actually doing it ....its hard work and the costs add up. thats my thoughts... in the ring
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