Mergers and acquisitions (M&A) are up in the mortgage lending industry in a big way in 2022, according to a recent report from Stratmor Group.
Per the mortgage consulting firm’s new report, “Consolidation in the Mortgage Industry: M&A Strategies for Lenders,” nearly 50 M&A transactions are anticipated to be announced or closed by the end of this year. That’s 50% more deals than there were in 2018, which is currently the year with the most lender consolidations in the past 30 years.
“Stratmor has been pointing to increased M&A activity for over a year and, in fact, that’s exactly what we are seeing in the market now,” said David Hrobon, principal at Stratmor Group. “It is a good idea for lenders to continually evaluate their options, and a well-qualified advisor can lead a lender through the process to ensure that everything important is taken into consideration. It is never too late to take a data-driven assessment of your company’s market position.”
Stratmor cited two primary reasons for this year’s heightened M&A activity. For one, many owners are reaching retirement age and, with lifetime net worth objectives achieved, have been looking to divest their businesses. Second, the turbulent nature of the current mortgage market, with more rough waters ahead in many forecasts, has many executives motivated to make a deal.
With the market uncertainty not anticipated to let up until at least the second half of next year, “all signs are pointing toward a robust M&A market in 2023 as well,” Stratmor’s report stated.
Hrobon said that while plenty of opportunity exists for both buyers and sellers, structuring a good deal is harder now than it has been. The lending environment of the previous decade has generally provided “a decent amount of cushion relative to execution results,” according to Stratmor, so if volume projections were within reason, many mergers and acquisitions made sense. But today, there’s a much smaller margin for error, and with profits trending sharply downward, sellers have to do more due diligence in order to attract the right buyers and structure the right deals.
“A sage general counsel from a previous employer once said to me, ‘If you want a transaction badly, that’s how you will get it: badly,’” Hrobon wrote in Stratmor’s report. “Today, a transaction must make financial sense, include well-matched parties, have meaningful synergies, and must make life better for the sales staff, the operations staff and the corporate services staff that will remain.
“These deals exist, [but] if the buyer and seller don’t clearly view it as a ‘win-win,’ then there will likely not be a winner for either party.”