TIDMLSL
RNS Number : 3702W
LSL Property Services PLC
23 April 2021
23 April 2021
LSL Property Services plc ("LSL" or "Group")
LSL announces GBP200m "Pivotal Growth" joint venture with Pollen
Street Capital ("PSC") as part of LSL's strategy to develop a
pre-eminent position in the mortgage intermediary market
LSL announces today the formation of a joint venture with Pollen
Street Capital ("PSC") to establish Pivotal Growth Limited
("Pivotal Growth"), a vehicle seeking to become a leading national
mortgage broker powered by market leading technology, first class
regulatory compliance and exemplary customer service.
It is planned that at least GBP200m will be made available by
way of equity and debt to fund acquisitions. LSL has committed up
to GBP33.5m and PSC up to GBP62.4m to support the acquisitions to
be made by Pivotal Growth. The investment by LSL and PSC will be
supplemented with external debt finance in Pivotal Growth to fund
purchases, with a view to an exit event over a three-to-six year
period.
LSL's Chairman, Simon Embley, has been appointed Chief Executive
of Pivotal Growth and will step down from his role as Non-Executive
Chair of the LSL Board, following the publication of the Group's
Preliminary Results for 2020 on 28 April 2021. At the same time,
Bill Shannon, currently Deputy Chair and Senior Independent
Director, will become Chair of the LSL Board and Chair of the
Nominations Committee. A separate announcement released today has
further details relating to the Board and Committee changes.
All major strategic decisions in relation to Pivotal Growth are
subject to the agreement of both LSL and PSC. David Stewart, LSL's
Chief Executive Officer, and Ian Gascoigne, Partner at PSC, will be
directors of Pivotal Growth.
LSL operates one of the largest Financial Services network and
advisory businesses in the UK with around 2,600 advisors. Through
its PRIMIS intermediary network, it accounted for GBP32.6bn of
mortgage completions in 2020, representing approximately 9% of the
total purchase and remortgage market, and in 2020 provided new
protection insurance policies generating around GBP54m of
annualised premium. LSL is also a specialist in providing mortgage
and protection advice to estate agency customers and operates two
of the UK's largest new homes mortgage advice businesses.
A particular area of focus is the development of market leading
technology solutions, that assist mortgage and protection advisers
to run their businesses efficiently and effectively and to increase
sales performance. The Toolbox system is used to manage the
operations of all PRIMIS members and will be the operating and
technology platform for the Pivotal Growth "buy and build". Pivotal
Growth will also use the technology of the recently acquired
Mortgage Gym and Direct Life & Pensions businesses which offer
award-winning solutions for the mortgage and protection markets
respectively.
Pivotal Growth has entered a long-term arrangement with PRIMIS,
with all acquired businesses anticipated to become PRIMIS members,
leveraging further PRIMIS's scale and existing leading positions in
the mortgage and protection markets.
Pivotal Growth
As part of a strategic review undertaken in 2020, LSL identified
a significant buy and build opportunity in the mortgage and
protection intermediary market. The LSL Board has concluded that
this opportunity would best be pursued by working with a joint
venture partner to provide additional capital and expertise in
financial services as well as experience of executing a similar
strategy in related markets.
The mortgage lending market is highly diverse, growing quickly,
resilient and dominated by intermediaries. Across a fragmented
market, LSL has identified a potential pipeline of over 50 larger
firms which could be grown further with the benefits offered by
Pivotal and the initial strategy will focus on these larger
businesses, thereafter, targeting smaller firms.
LSL's leading mortgage network, PRIMIS, will act as a platform
for the buy-and-build strategy reducing administrative, compliance,
payment, technology, and support service costs. This will underpin
PRIMIS's leading position in the mortgage network market, driving
additional growth in members. Acquired companies will benefit from
LSL's purchasing power, a scalable technology platform onto which
Appointed Representatives can be migrated, as well as the Group's
significant investment in digital capability including the recent
acquisitions of Mortgage Gym and Direct Life & Pension
Services.
The LSL Board believes that there are opportunities to increase
the distribution of protection products which is often
under-penetrated in this sector, to grow the share of remortgage
and product transfer business and generate recurring income.
LSL management and PSC each has significant sector experience
and proven capability in implementing buy and build strategies.
Management
Simon Embley, currently LSL's Non-Executive Chair, will be
appointed Chief Executive of Pivotal Growth and will step down from
his role of LSL Chair following the publication of the Group's 2020
results on 28 April 2021. Simon has a proven track record as an
entrepreneur able to launch and build businesses of a significant
scale and has considerable experience of the markets in which
Pivotal Growth will operate. The LSL Board has agreed to him
investing up to GBP4m alongside PSC and LSL for a 4.4% share in the
business, to align his interests with LSL shareholders and as a
demonstration of his strong belief in the potential of Pivotal
Growth. Simon will stay on the LSL Board as a Non-Executive
Director, allowing the Group to continue to benefit from his
knowledge and experience. This position will be kept under
review.
Jane Cross, previously Chief Risk Officer of the Group's PRIMIS
network and Managing Director of its e.surv surveying business, has
been appointed Chief Operating Officer. David Copland, previously
LSL's Director of Mortgage Services, will be the Strategy and
Business Development Director.
Pollen Street Capital
Pollen Street is one Europe's leading specialist private equity
investors in the financial and business services sectors, having
invested over GBP2bn since 2003 in a range of financial services
businesses across all stages of development. PSC works with
entrepreneurial management teams to build businesses that deliver
market-leading products and services to their customers in order to
create long-term sustainable success. Pollen Street has
considerable experience of the UK mortgage market and in executing
buy-and-build strategies.
David Stewart, Group Chief Executive of LSL, said:
"The launch of Pivotal Growth marks a significant milestone in
the implementation of the Group's strategy. It follows other
significant recent announcements, including the steps we have taken
to strengthen our management team and recent acquisitions of
Mortgage Gym and Direct Life & Pension Services.
LSL is a market leader in the mortgage network market and the
provision of financial services to estate agencies. The
establishment of the Pivotal Growth joint venture with Pollen
Street Capital will enable us to establish a leading position in
the provision of direct-to-consumer advice and underpins the
pre-eminent position of our PRIMIS network.
I look forward to describing our plans further when we release
our Preliminary Results on 28 April."
Ian Gascoigne, Partner at Pollen Street Capital, said:
"We are highly enthusiastic to support Simon Embley and his team
in the launch of Pivotal Growth. Pollen Street has an extensive
track record of backing successful buy-and-build platforms in UK
financial services, most recently with Specialist Risk Group in
commercial insurance broking, Kingswood in wealth management, and
with foreign exchange platform Foreign Currencies Direct.
We believe that LSL's unrivalled experience and expertise in the
financial and property services markets and Pollen Street's
extensive capabilities in investment and business transformation,
form the basis for a highly successful partnership. While large and
long established, the UK mortgage broking market remains highly
fragmented, offering significant potential for synergistic
consolidation. We believe that Pivotal Growth has potential to
quickly become a market leader, while delivering pioneering levels
of innovation and the highest standards of customer service in the
industry."
Further details of the Pivotal Growth transaction
LSL and PSC will each invest up to GBP19.1m for a 47.8% equity
share of Pivotal Growth. In addition, LSL will invest up to
GBP14.4m and PSC up to GBP43.3m by way of loan notes. The
commitments will be drawn down by Pivotal Growth over time
dependent on the timing of acquisitions and the extent of external
debt finance deployed. The LSL investment of up to GBP33.5m will be
funded from LSL's existing cash resource and banking
facilities.
LSL will apply equity accounting for its share of Pivotal Growth
profits after tax and will also recognise loan note interest
receivable, both to be included in the Underlying Operating Profit
of the Financial Services Division. The value of the equity
investment will be recognised in the LSL balance sheet as an
investment in joint venture and the loan notes recognised in
financial assets within non-current assets. In addition, the
acquired companies membership of the PRIMIS network will generate
further profit to the Group. The profile of profit attributable to
LSL from Pivotal Growth will depend on the timing of acquisitions
and before the execution of the first acquisition there will be a
period of modest investment in Pivotal Growth's operating cost
base. Thereafter, the profit contribution to LSL is expected to be
material within 2-3 years, with the opportunity for a meaningful
exit event within a 3-6 year period.
The current structure of the agreement provides that the amount
due to LSL for its share of proceeds at exit is capped. This cap
can be removed unilaterally by LSL with shareholder consent, and
LSL intends in due course to seek shareholder approval to remove
the cap.
As this is a newly established entity, Pivotal Growth has no
gross assets or profits.
This announcement contains inside information.
For further information, please contact:
David Stewart, Group Chief
Executive Officer
Adam Castleton, Group Chief
Financial Officer
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LSL Property Services plc investorrelations@lslps.co.uk
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Helen Tarbet
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Sophie Wills
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Buchanan (for LSL) 0207 466 5000 / LSL@buchanan.uk.com
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Cait Dacey 07973 596 503 / pollenstreet@standagency.com
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Stand Agency (for PSC)
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Forward Looking Statement
This announcement may contain certain statements that are
forward-looking statements. They appear in a number of places
throughout this announcement and include statements regarding LSL's
intentions, beliefs or current expectations and those of its
officers, directors and employees concerning, amongst other things,
LSL's results of operations, financial condition, liquidity,
prospects, growth, strategies and the business it operates. By
their nature, these statements involve uncertainty since future
events and circumstances can cause results and developments to
differ materially from those anticipated. The forward-looking
statements reflect knowledge and information available at the date
of preparation of this update and, unless otherwise required by
applicable law, LSL undertakes no obligation to update or revise
these forward-looking statements. Nothing in this update should be
construed as a profit forecast. LSL and its Directors accept no
liability to third parties in respect of this update save as would
arise under English law.
Any forward-looking statements in this announcement speak only
at the date of this announcement and LSL undertakes no obligation
to update publicly or review any forward-looking statement to
reflect new information or events, circumstances or developments
after the date of this update.
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END
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