
Jan. 16: STRATMOR instrumental in latest acquisition deal between Mr. Cooper and A&D
Mergers and acquisitions continue, big and small. And there’s always a steady stream of rumors. The small mergers or acquisitions (a brokerage shop here, a branch there) don’t attract a lot of attention. The big ones do, and in this case warrant an unusual mid-day Commentary being sent out.
A&D Mortgage, LLC (“A&D Mortgage”), is proud to announce the signing of a definitive agreement to acquire the wholesale and non-delegated correspondent mortgage business from Mr. Cooper Group Inc. (“Mr. Cooper”).
Recall that Mr. Cooper previously acquired the wholesale and non-delegated mortgage business as part of a separate transaction in November 2024. In 2024, you may recall that Mr. Cooper completed the larger transaction with Flagstar.
“We took a very careful and measured approach to finding a potential partner to grow our QM business,” said Max Slyusarchuk, CEO of A&D Mortgage. “A&D’s goal is to be an industry leader, and this transaction is a big step forward.” The combined entities funded over $10 billion in originations in 2024.
“The combination expands A&D’s broker network to over 8,500 partners, with access to a full suite of benefits offered by a top-tier lender. These include a diverse portfolio of 20+ mortgage programs tailored to meet every loan scenario including Agency, Government, Jumbo, and Non QM, industry-leading turnaround times, advanced technologies including proprietary origination technology, and a partner-focused "YES" approach delivering unmatched support.”
“It took almost three years of screening candidates and finally we found what we were looking for,” Lana Izgarsheva, Chief Operating Officer of A&D Mortgage, added. “The deep expertise in the mortgage business, the high-tech culture, and most importantly, the core values of the team — these are things we are similar in. I think this is a great match!’
“The wholesale and non-delegated team members at Mr. Cooper will be offered the opportunity to join A&D Mortgage when the transaction is complete. The transaction is expected to close by March 31, 2025; the terms of the transaction have not been disclosed.”
STRATMOR Group served as advisor to AD in support of this transaction.
Garth Graham and the M&A team at STRATMOR have their eye on trends in the mortgage industry. Do changes in rates change the trajectory of deals being done in mortgage? The trick is that the lower rates don’t necessarily impact everyone equally, so companies may not get the benefit they expected who were counting on a big bump from lower rates… Maybe a bump that is the difference between staying the course and selling out.
Any merger or acquisition looks at the product mix, and purchase versus refinance percentages. As Garth said, “Refinances don’t necessarily spread like peanut butter”: they do not equal for all originators. His recent article explains why.
Switching gears to why some mergers and acquisitions work and others don’t, one area that has plagued deals in the past from seeing the best results is culture. Is a lender or bank merging with another lender or bank that you’ve been competing with, and despising, for decades? Is there too much “history” to make it work, even if the financials and footprints work perfectly?
Lenders and banks may have differences from others in operating structure, hierarchy, dictatorial management vs. more open styles, pay structures and other factors. Here too, candidates should evaluate things very carefully before jumping into the pool, if success is to be truly achieved over the short and long term.
Certainly, there are lots of factors to consider. A study done several years ago (Gubler) looked at mergers across various countries during the 1980s and 1990s. It used accounting data to compare post-merger profit performance 5 years after the merger to control groups of firms in the same industry. It found that the most common result, interestingly with common patterns across countries, was increased profitability but reduced sales. Meanwhile, about 41% of all mergers reviewed failed to have a positive impact on profits.
A study out of Wharton discussed why mergers fail. (It is about 11 years old, but nothing has changed.) The study notes that there have been “hundreds of studies” looking at the long-term results of mergers and that researchers estimate the failure range is between 50% and 80%. That is downright ugly. A KPMG survey of 100 community banks several years ago found the areas tagged as the three biggest drivers of company revenue growth over the next 1 to 3 years are: asset and wealth management (32%), mergers and acquisition activity (28%), cross-selling (28%) and new market segments (25%).
There is the issue of staffing. What percentage of each institution is support staff? There are challenges at the higher echelon levels too as there will be duplication of positions. There will be multiple CEOs, heads of production, CIOs, capital markets, CFOs, etc. who have to be sifted, and this will entail a lot of pain as some may have to leave. Departments have to be realigned or closed. The private sector is ruthless and the higher pay scales carry an unemployment trade-off as they use euphemisms such as shareholder value for downsizing. If one of the biggest benefits of an M&A deal is combining staffs, or acquiring talented individuals, failing to lock in key personnel through contracts before a deal is announced can result in the loss of some of the very people that made a deal attractive.
There will be plenty of mergers, and acquisitions, in lending and banking in 2025. Doing homework and analysis is critical, and as Steve Brown from PCBB notes, “It is also important not to fall in love with a given target because a bad price or bad culture can blow up any deal and your own bank post-deal.”
Meanwhile, STRATMOR is very active in M&A, and recently told me that the pace of deals in 2024 remains very high, exceeded 2023, and may even be higher in 2025. (I am always amazed by the STRATMOR data since a lot of deals don’t get publicly announced).
As always, timing is tricky, and Garth mentioned that the time it takes to get a deal done can vary widely depending on the complexity and emotions involved and the speed at which the parties engage. He told me, “Of the last dozen deals we have done, the timing has ranged from two months from start to finish, to over one year to get the deal done. Asset sales are faster, while stock sales take longer, so it depends on the needs of the buyers and sellers what works best. But I warn potential sellers not to WAIT too long to engage in the process, even if you hold to pull the trigger. For example, we have deals in process where the parties have worked together for months (getting to know each other, share financials) and now are finalizing terms.”
The other key item is to be very careful about premature disclosure. Garth adds, “We are super careful about the NDA and non-solicitation process, and also with ensuring that the potential buyer signs a blind NDA before they know the seller’s name.”
And the final item from STRATMOR. “We try to do a lot of financial due diligence in advance, so the buyers and sellers go into the process with a full understanding of the financial synergies. After all, there is a lot of potential savings in back office and corporate expenses for the right acquisitions, so getting down to detailed analysis of those expenses is key to be done BEFORE the offer is made, not wait until due diligence.”
“We did multiple deals in 2024, and all had upfront premiums with solid earn out. Often the premium being paid is driven by the ability for the seller to add the production without having to add all the corporate expense, so it can be painful decisions about the corporate departments (secondary, HR, Risk, technology etc.), but the end result is that the production is worth more to the buyer than it is to the seller due to the cost savings. And that shows up on premium offers. And the seller gets the balance sheet plus a share of that financial benefit. So, it can be a potential win-win.
(Anyone interested in learning more should talk to David Hrobon or Garth Graham.)
Things don’t get easier. You have to handle hard better. Just ask Kara Lawson.
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