ISCOVER
Brokers looking to buy or sell trail books are facing a stronger market, with rising multiples and more competitive bidding, according to TrailBlazer Finance.
Trail book sale multiples have climbed to three times annualised trail in FY2024–25, as strong buyer demand outpaced supply, according to specialist funding and valuation services provider Trailblazer Finance.
Speaking on The Adviser’s In Focus podcast, Simon Lewis, the head of distribution at TrailBlazer Finance, revealed that the trail book buyer saw the average sale price for broker trail books rise 6 per cent, from 2.83 times trail the previous year.
According to Lewis, this is partly due to rising demand amid ongoing industry consolidation as the first wave of brokers retire, and as more brokerages look to fund growth through acquisitions.
Lewis said demand was coming not just from brokers but also investors, with the trail book specialists seeing an average of six bids per trail book listed.
“There are investors who are buying trail books purely just to get the cash flow,” he said.
However, he added that increasing trail book values are also due to an improvement in loan book quality and stronger client retention and revealed that more seasoned books were attracting higher multiples than newer ones.
He added that the gap between high- and low-quality books was widening. “The difference in a valuation multiple, for example, in FY25, was as big as a range of 1.92 to 2.77,” he said.
“So there’s a 44 per cent range between a good book and a not-so-good book purely just on the valuation,” he said.
Sale prices ranged from $100,000 to more than $2 million, with an average of $250,000.
Average loan balances in broker trail books have also risen, with an average of $564,000 in FY2023–24 and rising by 0.5 per cent into FY24–25.
Loan balance runoff peaked at 25.43 per cent in FY23–24 before easing to 22.94 per cent in FY24–25.
“The reason that the runoff rate was so high in FY24, we think, is largely due to the cashback offers, which a lot of lenders were offering,” Lewis said, adding that high runoff can have a major impact on trail book valuation.
“If your book is running off somewhere around 25 per cent per year, after three years, only half the trail is going to be there,” he told The Adviser’s In Focus podcast.
Clawbacks also rose sharply at the time, with the median clawback rate in FY23–24 being 9.44 per cent, according to TrailBlazer Finance’s recently launched The Finance Broking Intelligence Report, which analysed more than 200 valuations and 31 trail book sales across FY2022–23 and FY23–24.
The increase was 21.7 per cent up on FY22–23, again attributed to cashback incentives.
Lewis said buyers were closely scrutinising these fundamentals: “These factors are so important, and any smart buyer is going to want to make sure that these things are robust and in place.”
As such, Lewis suggested that brokers know their value drivers, and stress-test their loan books before transacting.
“There is no one-size-fits-all formula, multiples reflect quality: loan age, run-off, clawbacks and lender spread,” he said.
He recommended that brokers looking to buy or sell trail books do their homework before transacting – highlighting The Finance Broking Intelligence Report as an example.
The report – believed to be the first based on actual trail book sales and valuations – analysed more than 200 valuations and 31 trail book sales across FY22–23 and FY23–24.
TrailBlazer Finance managing director Jeff Zulman said the report provides critical transparency at a pivotal time for the industry.
“This is a turning point,” he said.
Trail books have always represented the lifeblood of a brokerage, but until now, brokers were left guessing their real worth.
“By publishing actual market data, we’re giving brokers the evidence they need to negotiate confidently, plan strategically, and unlock the full value of their business,” he said.
You can find out more about the recent trends in trail book values in The Adviser’s In Focus podcast, sponsored by TrailBlazer Finance, here:
[Related: In Focus: How to navigate trail book buying and selling in today’s market]
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