Loan book values expected to rise further

The increased integration of other financial products and services is driving up the price of loan books, according to an M&A expert.

John Birt, principal of Radar Results, said the opportunity to cross-sell was driving demand for mortgage books across the country.

“The purchased loan client could end up being an ideal financial planning client, which is one of the main reasons Mortgage Choice, Australia's largest aggregator, expanded into financial planning last year,” Mr Birt said.

Other than financial planning, additional services such as accounting, life insurance, general insurance and property sales can also be offered, he said.

In the latest Radar Six-Monthly Price Guide, released 5 February, Radar Results listed mortgage books as selling for between two and two-and-a-half times their annual trail amount.

“In reality, I can see this loan book multiple moving even higher based simply on demand and supply,” Mr Birt said.

“The demand for loan books in capital cities such as Brisbane, Melbourne, Perth and Sydney is at an all-time high,” he said.

Mortgage management businesses have also been sought-after, moving up the multiple that's being paid on their earnings before interest and tax (EBIT) figure.

“A year ago you could buy a mortgage management business that had between $500 million and $1 billion in loans for three to four times its EBIT,” Mr Birt said.

“Now, you're expected to pay between four-and-a-half and five times EBIT, which can be attributed to the larger mortgage managers getting bigger by adding scale and benefiting from economies of scale.”

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