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Yellow Brick Road to acquire mortgage aggregator, Vow Financial Holdings

Published: 07:07 07 May 2014 BST

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Yellow Brick Road (ASX: YBR) has as widely expected entered into an Implementation Deed to acquire privately-owned Vow Financial Holdings, one of Australia’s largest mortgage aggregators.

The financial consideration was not disclosed.

This brings to the forefront the company’s acquisition strategy to grow its business both organically and by acquisition, having previously flagged that it was in discussions with three groups.

The Vow acquisition has received the unanimous support of Vow’s board and has made offers to each of the aggregator’s 24 shareholders.

Notably, Vow chief executive officer Tim Brown and Macquarie Bank – its largest shareholder – have accepted for their respective holdings, bringing the total acceptances up to about 40% of Vow’s issued capital.

The other directors of Vow have also agreed to accept the offer in regards to all Vow shares they own while its management and staff support the change in ownership.

“The acquisition of Vow is consistent with our strategy to become a leader in the “Non-Bank” segment,” YBR executive chairman Mark Bouris said.
    
“Vow will provide YBR with a new national distribution channel and business model, with its current access to over 700 mortgage broker groups.

“It is a profitable business that earns commissions from a growing loan book with a current total size of approximately $18 billion.

Vow Financial

Vow negotiates on behalf of its more than 700 mortgage brokers directly with lending institutions and collects up-front and trailing commissions from the lending institutions for the loans introduced by brokers.

It provides a monthly commission payment service to the brokers as well as comprehensive business development support including marketing, professional development and access to a diversified range of products and services.

In consideration for these services, Vow earns fees and retains a share of the commissions collected from the lending institutions.

It was also the winner of the Wholesale Aggregator of the Year in 2011 and 2012 at the Mortgage & Finance Association of Australia’s Excellence Awards.

Acquisition Strategy

Yellow Brick Road has noted that it is considering a number of acquisitions to grow its business and in active discussions with other groups.

With the takeover offer for Vow, a mortgage aggregator, now underway, it is understood that the company is still running the rule over a consumer product rating and lead generation group as well as mortgage manager.

These will build scale and facilitate efficiencies throughout the company while broadening its capability in mortgages, investment and insurance products and advice.

It will also enhance its distribution footprint and skillsets.

Analysis

The recommended takeover offer for Vow Financial is a key plank in Yellow Brick Road’s strategy of becoming a leader in the “Non-Bank” segment.

Notably, Vow is a profitable business that will give the company new national distribution channel and broaden its capability in mortgages from new broker groups from which to expand its product suite.

With the almost insatiable demand for mortgages in Australia, this acquisition is timely gaining access to a massive 700 mortgage broker groups, adding to top end revenues for YBR and to earnings.

This will help drive the company’s growth as it moves to delivers increase group cash flows and record a maiden profit in the 2015 financial year.

At a market cap of circa $125 million, Proactive Investors believes the acquisition sets the stage for a re-rating arc for YBR within the next six months as it is on the cusp of a profitable growth drive.

Recently, we initiated coverage and provided guidance on our valuation and share price target of $0.73 to $0.97. We believe this will prove conservative and we consider YBR to be one of our top picks of 2014 in the industrial sector.

 

Proactive Investors Australia is the market leader in producing news, articles and research reports on ASX “Small and Mid-cap” stocks with distribution in Australia, UK, North America and Hong Kong / China.

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