Two firms specialising in new build mortgages have been sold out of LSL Property Services group to a joint venture it operates with private equity investor Pollen Street Capital.
Group First Limited and RSC New Homes Limited have been acquired from the Newcastle-based plc by Pivotal Growth, a business set up to become a national leading mortgage broker. The deal is worth seven times the combined Group First and RSC Ebitda in 2024 and capped at a maximum of £20m.
LSL says the move is in line with its strategy to simplify its group and focus on growing its financial services business. The owner of the Reed Rains and Your Move estate agency businesses has built up its financial services division, which reported record revenues in the first half of 2022 and now accounts for 10.2% of the total purchase and re-mortgage market.
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Pivotal Growth was launched in April 2021 with £200m at its disposal to make acquisitions. LSL put £33.5m into the venture which provides technology to help mortgage and protection advisers run their business and increase sales. LSL has previously said it intends to exit Pivotal within the next few years.
In an update to investors, LSL said the sale of its two firms would not make a big impact on the group. It said: "We also believe that Pivotal Growth is better placed to increase the value of Group First and RSC, and these acquisitions mark a significant step in building critical mass in the new build brokerage sector, that has been targeted by Pivotal, as it becomes a leading player in this space."
Chief executive David Stewart said: "The transfer of Group First and RSC represents an important step in the execution of our strategy and in the development of Pivotal Growth. Financial services is at the heart of the group's growth strategy where we have identified significant opportunities to develop LSL's position as the leading provider of services to independent mortgage brokers.
"These transactions help to simplify the group structure to allow us to focus on maximising these business-to-business opportunities, whilst also reducing exposure to housing market cycles. Pivotal Growth was established in 2021 to exploit the opportunities we had identified in the direct-to-consumer mortgage broking market, and growth in the new build sector is a strategic focus for Pivotal Growth."
In 2021 Group First's gross assets were £15.2m and profit was £1.4m. The value of RSC's gross assets was £3.7m and profit for the year was £700,000. Combined profit for the 2022 financial year is expected to be £700,000. The amount payable for the acquisition is due in the first half of 2025 - at which point LSL said it would decide how to use the funds.
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