Trail book prices rise by 50% in past year, says M&A specialist

by Calida Smylie07 Mar 2014
Insatiable demand for mortgage trail books is pushing prices up, says the head of a leading mergers and acquisitions firm.

Radar Results has seen higher than usual demand from its clients for trail books, irrespective of where the book is based.

“Kalgoorlie, Alice Springs, Broken Hill or Townsville, buyers are paying cash 1.5x to 1.8x trail, no questions asked. And it doesn't matter who is the aggregator,” principal John Birt said.

He told Australian Broker he has noticed the price go up at least 50% in the past year.

“I’ve always noticed a bit of a shortage, but recently the prices have just gone up. They used to sell for about 1 or 1.2x – pretty low multiples – but now you’d have to pay 1.6, 1.8, or 2x or probably even more to get the same book.

“I’ve had numerous enquiries over the past six to 12 months, and prices have been escalating. I spoke to someone yesterday who was tipping the prices are going to go past 2x the paying revenue for the trail.”

Birt said the active market and buoyant economy means people are “hanging on to their books more” – while banks are willing to lend so others can afford to buy mortgage trails.

“It’s demand. It’s just demand. We can’t find many mortgage books for sale, and when we do, there’s a bidding war on them. It’s like an auction, forcing the prices up.

“It’s probably an indication that things are looking up, even though unemployment levels are pretty high. These low interest rates… it’s unheard of. There’s a ‘dog eats dog’ competition between the lenders at the moment.”

Radar’s clients are predominantly financial planners and accountants who do mortgage broking too, and also want trail books to expand the amount of clients they can offer superannuation and life insurance to.

When a mortgage book becomes available Radar puts it to around 20 or 30 clients and it gets “snapped up straightaway”, Birt said.

“We have clients who have $1m just sitting there to spend today on a mortgage book. As long as it’s a reasonable price being asked – 2.5 or 3x would be too much – then they will say ‘right, let’s go to the checkout tomorrow’.”
All which means Radar has been seeing a lot more activity lately, with six transactions due to be settled at the end of this month.

“We’ll probably have a record revenue between now and June," said Birt. 


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  • by John Whitten 7/03/2014 10:03:05 AM

    People are giving away their trail at 1.8 times. The only reason anyone would sell their trail for 1.8 times would be if they were having cash flow problems. Over 10 year term the multiplier even with run off would be at least 5 times. Don't give your money away.

  • by marty mcdonald 7/03/2014 12:58:18 PM

    Agree with John. Why you would sell for 1.8 times is beyond me. If you start with a $100 mil book and have a 20% pa runoff after 10 years the total trail paid would equate to $600K plus in income.

    The fact that private equity groups are trying to buy them tells me we are grossly undervaluing their worth. + 3.5 times is about what they should be trading at IMO.

  • by Mander 7/03/2014 2:38:57 PM

    What book runs off at 20% after 10 years? Average CPR is more like 20% per annum or more. Particularly when you brokers churn the book.

    That's why the multiple is between 1 and 2.