News & Analysis

Barclays doubles money on mortgage exit

Barclays Private Equity has sold its 66 per cent stake in Preferred Mortgages to Lehman Brothers for 2.3 times its original investment, generating an IRR of over 40 per cent.

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Barclays Private Equity (BPE), the mid-market private equity business, has achieved a successful exit of Preferred Mortgages, the UK mortgage provider it acquired as part of a £270m management buyout in 2001.

BPE acquired a 66 per cent stake in the business in 2001 with Rotch Property Group, the vendor, retaining a minority stake. Although the consideration has not been disclosed, BPE said it had sold its stake to Lehman Brothers for 2.3 times its original investment, generating an IRR of over 40 per cent. Rotch Property Group held a 15 per cent stake in Preferred Mortgages and management held the balance. Both have sold their shares to Lehmans alongside Barclays Private Equity.

 

Preferred Mortgages provides mortgages for customers with poor credit ratings who find it difficult to get a mortgage from traditional lenders. The company covers many market sectors including non-conforming house purchase/re-mortgage, right-to-buy, self-employed/self certification, buy-to-let and shared ownership.

 

In 2003 the company is on target to deliver a 65 per cent growth in new business completions, according to BPE, as well as a 64 per cent rise in the number of mortgage accounts. The company employs 200 people.

 

“Preferred Mortgages has outstripped its competitors in a rapidly growing mortgage market while maintaining prudent lending criteria throughout,” said Owen Clarke of Barclays Private Equity. “The company is well positioned for its next phase of development.”

 

The vendors were advised on the deal by Hawkpoint Partners (finance) and Addleshaw Goddard (legal). Lehman Brothers was advised by Lehman Brothers International (Europe) and Clifford Chance and Ernst & Young.

 

Most recently in the financial services sector, Barclays Private Equity backed the management buyouts of FirstAssist and Direct Group and realised its investment in independent financial adviser Momentum with the sale to Aegon UK, which it backed in 2000.