What Happened? Yellow Brick Road Holdings Ltd (ASX: YBR) is rumoured to be in talks with rivals about another potential acquisition to take the company's share of the residential mortgage market over 10%.
Yellow Brick Road, which was founded and chaired by investment guru Mark Bouris, counts the aggressively expanding Macquarie Group Ltd (ASX: MQG) and the powerful Nine Entertainment Co Holdings Ltd (ASX: NEC) as major shareholders. The group's strategy has thus far seen it purchase aggregator Vow Financial and broking group Resi Mortgage Brokers in the last financial year. This grew the company's points of distribution from 206 to 1,030 in the most recent half.
What Now? A further takeover or merger with a larger or similar-sized rival like Homeloans Limited (ASX: HOM) could see Yellow Brick Road quickly take the market share it believes it requires to have pricing power with some of Australia's biggest banks. This would provide the enduring competitive advantage over peers that a mortgage broking firm requires to remain competitive.
A merger with Homeloans Limited also has the potential to add National Australia Bank Ltd. (ASX: NAB) as a substantial holder as well as boost the bottom line. Homeloans Limited reported a $6.2 million profit after tax in the 2013/14 financial year on revenue of $53.5 million.
Perfect Position!
While some commentators are predicting a slowdown in the rate of new mortgages, new Australian Bureau of Statistics data released on Monday showed that the number of buildings approved lifted by 2.8 per cent to 19,419 in March! This massive jump could be great news if Yellow Brick Road continues to consolidate its position as a strongly-growing broking house.
The secret though, is that Yellow Brick Road isn't just a broking group! The group also does financial planning, life insurance, funds management, general insurance, accounting and tax. These services help to build an enduring customer base that use Yellow Brick Road for all of its financial needs!
