Derby-based Mortgage Advice Bureau plc (MAB) said on Tuesday it agreed to acquire 80% of Edinburgh-based First Mortgage Direct Ltd for an initial £16.5 million, valuing the business at £20.6 million.
First Mortgage employs almost 100 people.
About half of First Mortgage’s revenues are derived from protection products, which have strong margins.
In 2018, First Mortgage arranged £2 billion in mortgage lending.
In the nine months ended December 31, 2018, First Mortgage achieved revenue of £10.2 million and profit before tax of £1.5 million.
The net assets of First Mortgage as December 31, 2018, were £2.9 million, with cash balances of £3.5 million.
“MAB has agreed to acquire 80% of the entire issued share capital of First Mortgage Direct Limited from Ian Robert McGrail (managing director) and his father Robert Lawrence McGrail (director) for a cash consideration of £16.5m,” said MAB.
“Ian Robert McGrail and Robert Lawrence McGrail respectively own 50% each of the business.
“Ian Robert McGrail will retain a 20% shareholding in First Mortgage and remain in the business in his current role and Robert Lawrence McGrail will be divesting in full and leaving the business …
“MAB has also entered into an option agreement with Ian McGrail (structured as a put and call option), to acquire the remaining 20% of the entire issued share capital of First Mortgage from Ian McGrail between 2024 and 2030, at a valuation for the business of eight times the prior year’s audited profit before tax, adjusted for distributable reserves and regulatory capital requirements, for a minimum of £4m and up to a maximum total consideration of £10m.
“Under the terms of the option agreement, MAB can, at its discretion, satisfy up to 75% of the consideration through the issue of new ordinary shares in MAB.
“Any new ordinary shares issued to satisfy this consideration will be subject to orderly market provisions.”
MAB managing director Ben Thompson said: “I am delighted that Ian has chosen to work with us, to help us both to really accelerate our respective growth plans and am excited at the prospect of making this highly successful and enjoyable for both teams.”