On 22 October 2004, the board of Prestbury announced that, following an approach, it was conducting a strategic review which may include a sale of the Company. A further announcement was made by the board of Prestbury on 9 December 2004 indicating that it had entered into discussions with a number of parties which may or may not lead to a sale of the Company.
This acquisition will approximately double the number of advisers and add significant revenues and incremental business to Prestbury. Discussions with all parties for a sale of the Company have terminated.
Lee Birkett, Prestbury Chief Executive, said: “When we brought Prestbury to AIM thirty months ago we said that we planned to create a leading force in the new regulated world that was emerging. Since then we have invested heavily to create the trading and compliance infrastructure needed for success in this new world. Joining Blue Pearl’s business with ours will give the combined business real scale and critical mass. We are delighted to welcome into Prestbury the Blue Pearl team and all the Blue Pearl network members. Together we believe we can move forward with confidence in an exciting future.”
Kevin Sample , Blue Pearl Sales Director, said: “We see this combination as the right strategic move for our young company and its intermediary members. Blue Pearl has had and continues to have remarkable success in recruiting members, and we have achieved significant scale in a very short time. Bringing this network together with Prestbury’s well-developed trading and compliance platform means a bright and secure future for our members. We think this is a great move, and we look forward to working with our new partners at Prestbury.”
Background to and reasons for the acquisition
q Blue Pearl is a low risk mortgage and general insurance network consisting of 50 appointed representative firms authorising 93 individual advisers.
q In addition to the appointed representative firms, Blue Pearl has commercial arrangements with a further 53 directly authorised firms who access the Blue Pearl panel of life assurance providers.
q Following the acquisition Prestbury will double the number of advisers under its control to a combined 105 appointed representative firms authorising 210 registered individuals and more than double the number of directly authorised firms to a total of 84
q Blue Pearl is authorised by the Financial Services Authority for the sale of mortgages and general insurances. In keeping with Prestbury’s low risk business model, Blue Pearl has not been exposed to the sales of endowments, precipice bonds or any other high-risk investment products. The company is free of debt and has received no complaints or claims for mis-selling.
q The acquisition will substantially increase Prestbury’s revenues with only a marginal increase of overheads.
q The consideration for the acquisition is 3 million new ordinary shares of 5p each in Prestbury, to rank pari passu with the existing issued ordinary shares, to be issued in tranches related to performance over the next twelve months; and £300,000 in cash, of which £150,000 is deferred for six months. Prestbury intends to fund the £300,000 cash element of the acquisition out of existing and forecast cash flows.
Financial impact of the acquisition
Prestbury currently has four main revenue streams: life assurance, conventional mortgages, monthly management fees and as a packager of high margin non-conforming mortgages.
At present, Blue Pearl only generates life assurance revenues, albeit at a higher level than Prestbury’s life assurance revenues. Within the first few weeks following completion of the acquisition of Blue Pearl, Prestbury will begin to collect the conventional mortgage revenue streams that are not currently being collected by Blue Pearl. In addition, Blue Pearl’s appointed representative firms and advisers will be required to transact their high margin non-conforming mortgage business with the Prestbury packaging team. This is an essential highly profitable in-house service that Blue Pearl has been unable to provide to its advisers previously. Prestbury have a dedicated team. The packaging revenue is the highest margin of the four revenue streams, from which Blue Pearl have previously been unable to generate revenues.
Prestbury intends shortly following completion of the acquisition to introduce monthly management fees for the Blue Pearl advisers that need additional compliance support. This service has not been available in-house due to Blue Pearl’s limited resources and personnel, and has been supplied by a third party at a cost to Blue Pearl. Prestbury has the infrastructure and resources to provide this service in-house and therefore bring this revenue stream into the business.
Revenue stream financials
q Life Assurance Revenues
Prestbury has relationships with the life assurance organisations below. Between them they represent a “whole of market” proposition for our advisers. Each provider has a vast range of products and options to offer and the majority provide life assurance together with general insurances such as buildings and contents insurance.
Legal and General
The average life assurance policy generates gross revenue of approximately £700 per sale. Prestbury retains an average of 15% in gross profit, or £105 for each life assurance policy sold.
q Conventional Mortgages
Prestbury provides access to the entire UK lending market, which is also a “whole of market” offering. Following the FSA’s regulation of mortgages beginning in November 2004 the distribution of the conventional mortgage marketplace has consolidated dramatically. Historically, each major UK mortgage lender dealt with tens of thousands of advisers directly. With effect from November 2004, FSA regulatory requirements have made these direct relationships extremely labour intensive and less attractive on a risk and profit basis.
Lenders have now entered into direct commercial relationships with the major distributors such as Prestbury. By dealing with a select number of major distributors the lenders are able to pay enhanced commissions. The commercial benefit to the lender is that they are provided with a more cost-effective compliance regime from Prestbury in that we audit and monitor our advisers in-house for a range of products, not mortgages alone.