AFG eyes new expansion with mortgage broker purchases

Mortgage wholesaler Australian Finance Group is drilling down deeper into the industry through a new “match-making” business to enable succession and expansion by brokers writing loans under its banner. Opening up a new front, AFG is in talks to deploy some of its near $70 million in free cash on the acquisition of minority equity stakes in mortgage broking businesses across its 4000-strong network. The WA-based group said on Wednesday its “strong balance sheet meant it had access to funding which could be used to take equity positions in well-run, growth-minded broker businesses across Australia”. The group did not disclose its likely spending, but as of June 30 it had $67m in cash and short-term deposits. Brokers now account for 74 per cent of all home loans written in Australia. However, with the mortgage broking industry now more than 30 years old, generational change is being challenged by funding obstacles as foundation brokers look to pass on their businesses to younger staff or new brokers who sometimes lack the money for the purchase or expansion. AFG said it had “been testing the market and found a strong appetite for investment, with active discussions underway”. It is understood that the group received as many as 15 approaches from interested brokers on Wednesday after announcing the new strategy. “Through AFG investing in its brokers’ businesses we are helping to facilitate succession planning for some and expansion for others,” chief executive David Bailey said, comparing it to “match-making”. He said the strategy was in line with AFG’s belief that it benefited from a healthy and growing network of brokers. The expansion will be driven by a newly-created Broker Investments team headed by Vik Sukumaran, a former general manager of operations and acquisitions at insurance intermediary Steadfast Group. “AFG has heard from its brokers that they are seeking assistance to expand their operations and support their growth,” Mr Bailey said. “As small business operators, access to funding for business expansion or forward planning for an eventual retirement, can prove challenging. “We have listened to these requests, and it has led us to offer a solution whereby AFG would invest in the business, taking a non-controlling equity position, providing that surety of funding, along with additional expertise to support the growth of their businesses.” AFG shares closed 2.5¢ higher at $1.55.