New valuation service launches for brokers

According to Trail Homes founder and chief executive Nick Young, the investment fund has traditionally conducted redacted valuations as part of its trail book assessment process to determine the book’s value.

However, he said the new valuation service is “far more comprehensive” and can be done independently of a potential trail book sale.

A broking business can be valued in three main ways:

• Multiple of trail book income – calculating the value of the trail book as a multiple of its annualised trail income. The multiple used is dependant on a range of factors, including the quality of the trail book, industry trends, and market conditions.
• EBITDA (earnings before interest, taxes, depreciation, and amortisation) – removing external accounting factors and non-operating expenses and focusing on the operational performance of the business, taking into consideration an approximate value of company cash flow.
• Comparable sales method – analysing the sale price of similar trail books and using them to value the trail book being reviewed. This method requires access to data on comparable sales and an in-depth understanding of the market.

According to Trail Homes, as well conducting one of the specific methodology utilised, the valuation is based on a 12-month minimum historical overview of the trial book, in conjunction with the assessment of comparable market data and in consideration of external market factors including run-off, seasoning (age and balance of loans), nil trail, and lender distribution.

This is overlaid with commission statements, profit and loss, and an overall business analysis, including a momentum index (an objective measure of whether the business is expanding, maturing, or declining) and loan volume written.

“Historically, trail book valuations have been associated with a broker’s exit from industry,” Mr Young said.

“Increasingly, valuations are being sought as a proactive measure to provide an accurate gauge, and remove any subjectivity associated with a brokerage’s book.

“Brokers are utilising the service as a realistic ‘health check’ for the business so they can strategically concentrate on improving its value of the business. In addition, valuations are being sought by brokers as an unbiased framework to buy out an existing shareholder, best structure a sale, or conversely, introduce new investors or entities into the business.”

[Related: High refinance activity driving up trail book run-off]