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

by Mackenzie McCarty22 Nov 2013
With the average age of a broker in Australia approaching middle-age (the MFAA reports the average age of its membership is 43), developing a successful exit strategy has become a major priority for many in the industry.

However until recently, options have been fairly limited, particularly for brokers working alone. For many, those options really came down to just two choices: allow your trail book to gradually dwindle down, or sell your book for an almost laughable amount, often without the assurance that your clients will be handled professionally after you leave.

First Street Home Loan director and founder, Jeremy Fisher, believes he may have devised an alternative. Over the past nine months or so, Fisher and his team have been developing a business model where his group acquires a broker’s business at well above the current market rates, incorporating the value of a brokerage’s established referral networks and client base.

It’s a plan that came about almost by accident, says Fisher.

“A few brokers started approaching me and saying, ‘Would you be interested in buying my business?’ They didn’t want to just let their business dwindle down, or sell to some kind of shark that’s out there buying people’s trail books. It was more because they wanted their clients to be looked after; I mean, these brokers have been working with their clients for 10, 20 years and they don’t want to leave them in the lurch.”

Fisher says 1st Street’s primary focus at this point is on brokers who have worked in the industry for a number of years and who are now looking to retire.

"This is really something the industry doesn’t have. We’re not looking to buy a trail book; we’re looking to buy a business where [a broker] has built the business up, has a successful client-base and wants their business to continue to survive and grow - and, more importantly, for their clients to be looked after by a professional operation.”

While he’s starting out fairly small –Fisher says his group is looking at initially taking on around 20-30 brokerages Australia-wide – he’s remaining relatively open about the future.

“We’ve got to make sure we can manage…We’ll grow as more acquisitions come on, but we need to make sure we don’t overd-do ourselves – that’s not what we want. The model we’ve done estimates around 100 brokers over a couple of years, but really that number was just used from a modelling perspective; it could be more or could be less.”

When asked why no one in the industry appears to have done this before, Fisher believes it comes down to a lack of interest from the larger parties – and a lack of capital from the smaller ones.

“There’s capital that’s required to be raised. Any broker would go out there to pay one-and-a-half times the trail book – that concept has always existed. We’re placing much higher value on the business; we want to buy phone numbers, names…and provide our services to your clients.”

Franchise model groups like Aussie Home Loans and Mortgage Choice, he says, aren’t really in the acquisition market and neither are the bigger aggregators, for the most part. The bigger guys are franchise models, so they’re not in the acquisition market. After that, he says, it’s up to the ‘little people’.

As recent winners of the AMA award for ‘Best Customer Service’ and previous winner of the ABA Australian Broker of the Year, Fisher hopes 1st Street has proven itself as a ‘worthy’ brokerage to take over retiring and exiting brokers’ clients.

Exiting brokers will also work with 1st Street to manage the transition and Fisher says 1st Street is already in discussions with several brokers. Acquisitions will be assessed based on scale of operation, expertise, business service contracts and management.

“I didn’t want to be seen by my broker peers…as doing anything but provide a service to those in the industry who are looking to exit and get a true value for what their business is worth. It’s been a lot of back-and-forth to make sure the proposition is going to work for both sides. We’ve put a lot of time and effort into the background to make sure what goes out is going to work for everyone involved.”

COMMENTS

  • by Albert Waldron 22/11/2013 9:39:13 AM

    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?

  • by Harry Myers 22/11/2013 10:23:40 AM

    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.

  • by Thomas 22/11/2013 10:45:32 AM

    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.