LSL teams with Pollen Street Capital to launch Pivotal Growth
LSL has formed a joint venture with Pollen Street Capital (PSC) to establish Pivotal Growth, a vehicle seeking to become a leading mortgage broker powered by market leading technology, first class regulatory compliance and exemplary customer service.
It is planned that at least GBP200 million will be made available by way of equity and debt to fund acquisitions. LSL has committed up to GBP33.5 million and PSC up to GBP62.4 million 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.
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 GBP32.6 billion of mortgage completions in 2020, representing approximately 9 per cent of the total purchase and remortgage market, and in 2020 provided new protection insurance policies generating around GBP54 million 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.
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.
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 GBP4 million alongside PSC and LSL for a 4.4 per cent 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 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 is one Europe’s leading specialist private equity investors in the financial and business services sectors, having invested over GBP2 billion 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, says: “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, says: “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.”