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To acquire or not to acquire?

A shifting marketplace makes acquisitions more difficult to assess

If you own or operate a retail mortgage lending platform in today’s marketplace, one subject is likely top of mind: growth.  A recent report from Alight Mortgage Lending gives insight to both the challenges and solutions lenders are taking to effectively manage the acquisition process.  

Stories of firms beating their own 2015 projections are widespread, which means the gaze for 2016 is shifting to future growth. It’s possible you are considering the on-boarding of new branches as a way to keep filling your origination coffers. It only takes one branch manager or regional manager changing employers to influence the migration of entire origination teams and change a firm’s future outlook.

The question is whether this strategy makes sense financially for your firm. An acquisition has the ability to positively impact a mortgage lender. However, it also runs the risk of turning a profitable operation into one that sees red in a hurry. So how do you know when an acquisition is right for your operation?

In order to know whether acquiring a branch is the best use of your cash, management must have the ability to do the following:

  • Run multiple scenarios based on information provided by the branch staff and evaluate those scenarios from multiple perspectives, overlaying your own operating assumptions to form best and worse cases.
  • Evaluate the corporate enterprise with and without the branch. Does the branch meet acquisition targets (paybacks and ROI, for instance) and performance targets (net value add) set for corporate branches?
  • Review and evaluate corporate results with and without the branch . . . after acquisition. As soon as a branch becomes part of the company, actuals are likely being recorded to the general ledger.

The challenge comes with taking those actuals, extracting them, and converting them back into a pro forma format, a time consuming process created by the constraints of Excel template methodology. However, to effectively evaluate the potential of any acquisition, lenders must identify the financial impacts across the entire enterprise and do it with both speed and agility.

To learn more about whether your lending operation is taking the right steps to evaluate the impacts from an acquisition, download the free report from Alight Mortgage Lending: Is branch acquisition the right growth strategy for your firm?

3d rendering of a row of luxury townhouses along a street

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