Mortgage Brain has bought the TrigoldCrystal Group for £6.8m or an alternate combination of cash, loan notes and shares totalling £9.9m.
Brokers will see no change to sourcing systems with the two brands expected to remain, but streamlining of the back-end processes is due to start next year.
The deal offers combined annual business revenues of £11m and will create the third largest provider of financial technology solutions behind The Exchange and Sirius.
The deal will be put shortly to shareholders and is expected to conclude within the next three months. A notification will also be made to the Office of Fair Trading for clearance.
Mortgage Brain's Mark Lofthouse will become the combined CEO of the new business, while TrigoldCrystal's joint CEO Martin Colyer will initially join the board, alongside Jon Whitmore, Peter Birch and Patrick Shuker.
Mortgage Brain, which is owned by the six major intermediary mortgage lenders, said this is the next stage in its bid to reposition itself as a technology provider to the financial services industry.
The combined group will be a dominant force in the mortgage sourcing system market, estimated to control more than 90% of the market.
Lofthouse said: "The combination of the businesses means that we will be able to accelerate new product development, continuously provide improved products and services and ensure that the advantages of technology-based solutions are, cost effectively, made available to all."
"It is very important that we continue to meet our customers' requirements both in terms of future product investment and continued support of products that are relied upon every day. Additionally, the combined business will be better placed to meet future regulatory requirements."
TrigoldCrystal has seen its turnover plunge by 55% since its takeover of Crystal Software Solutions in 2009.
Accounts show upon their merger, Trigold and Crystal Software Solutions had a combined turnover of £12.814m and an operating profit of £2.707m.
However, for the year to 30 November 2009, TrigoldCrystal Group's turnover had fallen by more than half to £5.824m with its operating profit down 93% to £310,926. This was in part due to exceptional circumstances related to redundancies and restructuring in 2008 and 2009.
In addition, the accounts show it has an outstanding loan of £2.9m, for which it must make yearly repayments of £750,000 plus interest. It recently restructured this loan over a four-year basis in order to offer the business more security, as the previous arrangement required renegotiating the deal every 12 months.
TrigoldCrystal currently has 62 employees and a subscriber base of 17,000, down from 25,000 at the end of 2007.
By comparison, Mortgage Brain's revenue has declined more modestly.For the year to 31 March 2008, Mortgage Brain's turnover was £7.378m, with an operating profit of £53,716. Two years later, its turnover had reduced to £5.906m with operating profit up to £275,433 and £2.808m of cash in the bank.
Commenting on the deal, Gemma Harle, managing director of Tenet Lime, said: "It is good news for Trigold, because it has struggled. Our brokers can choose their sourcing system and we're seeing more migrate to Mortgage Brain, which is more flexible and accommodating to work with.
"My only concern is that it may create a monopoly, because there isn't really another competitor out there. However, it won't have a significant impact on brokers other than whether the business continues to develop and add tools that are useful for advisers."
Dev Malle, sales and marketing director of PTFS, added: "It will be interesting to see what the view of the Office of Fair Trading is. Key concerns of brokers will be whether there will be a slow down in technological advancements and whether prices will go up. There need to be reassurances on this."
John Cupis, managing director of PMS, said: "This creates the single largest sourcing company in the market by far. This would enable the firm to invest in new positive initiatives for brokers and also ensure a solid platform ahead of the eventual changes that MMR will bring."
However, he holds the same concerns as Malle: "Brokers will be worried if this concentration of power leads to price increases and we would all hope that in these difficult times that we could be reassured by any merger that this was not to be the case."
Mike Fitzgerald, sales director of the Emba Group, said: "It will make the two companies into a better proposition and the increased capacity could allow them to offer better and more services, although it will mean that some people will lose their jobs."
He added: "There is not a market for lots of sourcing systems and I think it was inevitable."
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