LSL has entered a £200m joint venture with private equity investor Pollen Street Capital (PSC) to establish mortgage brokerage Pivotal Growth.
The residential property services provider, which is also the parent company of Primis mortgage network, has committed up to £33.5m to support acquisitions of mortgage advice firms to be made by Pivotal Growth, while PSC has committed up to £62.4m.
The investment by both parties will be supplemented with external debt finance in Pivotal Growth to fund purchases.
All businesses that are acquired are anticipated to become members of the Primis mortgage network.
According to LSL, the group identified a “significant buy and build opportunity” in the mortgage and protection intermediary market as part of a strategic review last year.
It added: “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.”
Pivotal Growth will use technology provided by Mortgage Gym, which the group acquired in February.
The new brokerage will also use technology provided for the protection market by Direct Life & Pensions, in which the group acquired a 60 per cent stake in February.
LSL's chairman, Simon Embley, has been appointed chief executive of Pivotal Growth.
The LSL board has agreed to Embley investing up to £4m alongside PSC and LSL for a 4.4 per cent share in the business, which the group said would “align his interests with LSL shareholders and as a demonstration of his strong belief in the potential of Pivotal Growth”.
Embley will step down from his role as non-executive chairman of the LSL board after publication of the group's preliminary results for 2020 on April 28, but will remain on the board as a non-executive director.
David Stewart, LSL's chief executive officer, and Ian Gascoigne, partner at PSC, will be directors of Pivotal Growth.
Stewart said: “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."
Gascoigne added: “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.”
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.