The report ‘A View for 2018 and Beyond’ from the Ernst & Young (“EY”) Financial Services Corporate Finance team includes the results of a survey conducted with 11 key bridging market players.
It also highlights recent trends and provides a view on market trajectory.
“One of the reasons for producing this market study is that many bridging lenders are targeting a sale of the business in the next two to five years, although currently few are up for sale,” explained Jordan Blakesley, senior manager in the EY Financial Services Corporate Finance team.
“We wanted to use our insight to create a report for the market that helped businesses shape their strategic direction.”
The survey showed that many respondents expected the number of players in the bridging market to decrease over the next few years due to competition forcing some players without unique selling propositions to exit the market, larger existing players organically growing and diversifying into other markets and smaller lenders being acquired by larger ones.
Stuart Mogg, director in the EY Financial Services Corporate Finance team, explained to B&C that while consolidation meant fewer players, they would be “highly profitable” with improved funding terms and potential for greater product innovation.
Stuart added: “There has been a good funding market for the bridging sector over the last couple of years, which has supported the growth of the larger players.
“As a result, we are starting to see a polarisation of the market and it has become clear that smaller players need to do something strategic to compete and achieve greater scale.”
Speaking to B&C, Rob Jupp, CEO of Brightstar said: “EY are seen as the most prolific deal makers in the UK speciality finance sector and any predictions that they make in this sector are generally spot on.
“Short-term lenders have attracted interest from a broad church of investors for quite a while now and I would expect to see the ‘best in class’ generating the environment that will allow for a number of significant capital events in the months and years ahead.”
The research indicated the strategic routes available for lenders within the markets that they were aiming to grow.
These included selling, merging, expanding overseas, buying a broker, exiting the market and expanding product ranges.
According to survey responses, the US market appealed to many bridging lenders if they were to consider international expansion due to there being capacity to grow quickly. The report stated that most lenders discounted Europe because of more customer-friendly legal systems and language barriers.
The study also explained numerous debt and equity funding options and how a lender would need to prepare for such a transaction.
Source: Bridging and Commercial