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CDPQ's M3 Investment Shows Faith in Canadian Mortgage Brokers

CDPQ’s Investment in M3 Shows Faith in Canadian Mortgage Brokers

Canadian mortgage brokers got a resounding vote of confidence today from one of the biggest investors in Canada.

Caisse de dépôt et placement du Québec (CDPQ) has just announced a sizable investment in the M3 Group (M3), a broker network that bills itself as “the undisputed Canadian leader in mortgage brokerage.” (Update: Following this story, DLC Group released its public earnings, which stated $75 billion in funded mortgages for the 12 months ending September 30. That would make it the leader, based on reported volume data.)

M3 has 8,300 brokers and just posted a record $67 billion in funded mortgages in the 12 months ending September 30.

Why the Investment Now?

A BMO report in August pegged mortgage broker market share at roughly 40-50% in Canada, potentially on the lower end of that range if you include renewal transactions.

But in the UK, for example, brokers own 79% of the market, said BMO. In Australia, another comparable mortgage market to Canada’s, brokers control 60% of originations, and climbing. That’s after a big slide in share following the global financial crisis (GFC).

“There is probably an opportunity for brokers [in Canada] to get an additional 15-25% market share in the next five years,” estimates M3 CEO Luc Bernard.

That would buck the trend in the U.S. broker market, though. It never saw a robust recovery in broker share following the GFC, with brokers now comprising just 20% of the total mortgage market, estimates BMO.

U.S. Mortgage Broker Share


Source: CoreLogic TrueStandings (Conventional Conforming Loans)


Banks and online mortgage providers are another wildcard. Digital competitors—one example being Scotiabank eHOME—are already online, offering consumers conventional rates and options that brokers cannot. Although, few online players are as aggressive as brokers for default-insured mortgages.

“We believe the broker can be the best ally for the customer…What’s in our favour is the consumer is fed up with having one provider,” Bernard told CMT. “They want access to all the options and they want to be in charge of selecting the right lending partner for them. We have great respect for the banks, but consumers are looking to process [mortgages] in an easier, more convenient way and that is exactly what we will provide.”

What’s the Money For?

“What we’re trying to achieve is to reach the $100-billion mark in the next two years,” says Bernard. He adds that the deal will provide “more capital to fuel this growth,” noting that M3 is at a stage where speed to market is trumped by broadening its reach, and that takes major investor backing. “If you want to go fast, go alone and if you want to go far, go together,” he says.

“One of our strengths is having access to low-cost capital and that is what this provides…Our expansion [plan] is to allocate 50% [of capital] on more acquisitions and the other half…[on] more investment in technology and digital marketing.”

“Scale does matter in our environment,” says Bernard. “You should see more announcements in early 2022 in acquisitions and investment in technology. We have the ability to do large acquisitions, so if other [significant] broker operations are up for sale, we are a buyer.”

M3 indicates a particular interest in developing “artificial intelligence” to make the mortgage experience faster and easier for borrowers and brokers alike. “We are committed to cutting the time to close a mortgage by at least half.”

Its M3 Venture division is actively taking positions in fintechs, Bernard says, with one example being its acquisition of mortgage lead generator Pinch Financial last June. “Pinch has developed state-of-the-art pre-qualifications with instant authentication of the consumer,” he said. It utilizes credit bureau data and the applicant’s banking data, which it will do more of once open banking takes hold in this country.

“We feel open banking technology will benefit brokers. Nobody knows if it is six, 12, 18, 24 months away, but we know it’s coming,” Bernard added.

CDPQ’s Stance

CDPQ is a $390-billion investment behemoth managing money for public retirement and insurance plans. It has invested in mortgage companies before, broker-lender MCAP being one example, so it’s got a strong understanding of Canada’s broker market. But, this marks its first pure-play mortgage brokerage investment in Canada.

“We tend to target companies well-positioned in the market with ambitious growth plans,” says Julien Dirand, Senior Director at CDPQ in Quebec. “We like M3’s ability to differentiate itself by investing in innovating solutions.” CDPQ’s investment gives it a minority stake in M3 Group.

“I am the largest shareholder, and I will remain there,” says Bernard.

While private, M3 confirms it is a significantly profitable business.

What’s Next for M3?

M3, founded in 2015, owns a collection of brands in the Canadian mortgage space: Multi-Prêts Mortgages, Mortgage Alliance, Invis, Mortgage Intelligence, Verico, Simplinsur/SimplAssur, Pinch Financial, M3 Tech, M3 Ventures and

Bernard suggests the company will add to those brands but stay private for the foreseeable future, unlike its rival DLC Group—which started trading under its own symbol in January.

“We don’t discard [going public], but there’s so much capital in the market that we don’t see the urgency to go public now,” he said. “We’ll see in two to three years if we need to [do a public stock offering].”

Interestingly, M3 indicated that it is open to expansion into the U.S. market. At that time, perhaps, public capital might be more necessary given the U.S. market is nine times that of Canada’s.

Speaking of DLC, Canada’s broker market is a two-headed beast, with M3 and DLC vying for dominance and, combined, controlling over four out of five broker-originated mortgages. When asked how M3 compares with its challenger, Bernard was diplomatic, highlighting M3’s growth potential, unique technology and “DNA.”

“I’m an ex-banker, so I know what lenders are looking for in terms of risk profile and efficiency,” he said. “Our track record has demonstrated that we can bring back large lenders who have decided in the past to exit.”

Case in point is National Bank of Canada, which returned to the broker space in 2019, choosing to integrate tightly with M3 systems. (DLC has its own exclusive lender relationship with HSBC.)