Mark Bouris set to list Yellow Brick Road through reverse takeover after independent expert backs deal

Wizard Home Loans founder Mark Bouris is another step closer to listing his financial services group Yellow Brick Road on the Australian Securities Exchange after an independent’s report backed the company’s reverse takeover of ITS Capital Investments.

Bouris officially joined the board of ITS Capital last week, ahead of a shareholder vote on ITS Capital’s proposal to acquire Yellow Brick Road to be held in Perth on March 17.

Under the terms of the deal, Bouris will emerge with between 46-49% of ITS Capital, which will then be renamed Yellow Brick Road. Bouris will be executive chairman of the new entity.

If the deal goes through, the newly-listed Yellow Brick Road will have a market capitalisation of about $31 million.

While the directors of ITS Capital have described the deal with Yellow Brick Road as “speculative” due to the fact Bouris’ company is still in the early stages of a growth phase, an independent expert’s report from accounting firm Grant Thornton has declared the deal “fair and reasonable” for ITS shareholders.

A spokeperson for Bouris said he is unable to comment on the deal prior to the meeting of shareholders.

Bouris started Yellow Brick Road in 2007 and has concentrated on building four divisions: finance origination and broking, insurance broking, wealth management and accounting services. These services are provided through a branch network, with individual branches run by franchisee.

All four divisions have a focus on SME customers, with the finance division offering loans between $300,000 and $20 million. The business now has 37 shopfronts around Australia, five accounting licences, a mortgage book worth $232 million and $395 million of funds under management. The company now has almost 3000 clients.

Much of the growth of the business has occurred in the last 12 months, when the number of branches rose from 15 at the end of December 2009 to 37 at the end of September 2010. The company is current trying to launch three or four branches a month, with a target of 150 branches by June 2014. A branch typically takes three to nine months to become fully productive, depending on the experience of the franchisee.

According to Grant Thornton’s report, Yellow Brick Road produced $13,605 in 2009-10, on revenue of $8.9 million. Revenue in the five months to November 2010 was $4.05 million (suggesting annual revenue of just under $10 million) although the company produced a loss of $301,000 due to costs associated with expansion costs.

ITS Capital valued Yellow Brick Road at $21.5 million, the same valuation on which Bouris raised $5.5 million in July 2010 from a group of sophisticated investors.

The new entity is expected to have a market capitalisation of about $31.7 million if the deal is approved.