$13 billion Black Knight deal still needs approval from antitrust regulators

Intercontinental Exchange Inc.’s $13.1 billion deal to acquire mortgage software, data and analytics provider Black Knight is a long way off, Black Knight shareholders and antitrust regulators are not sure. not yet approved the merger.

While Black Knight shareholders might try to wait for a better offer from ICE, the biggest threat could be getting approval from federal antitrust regulators. Regulators may take a dim view of ICE — provider of the mortgage industry’s most popular loan origination system (LOS), Encompass — also becoming the custodian of Black Knight’s Empower LOS.

According to Raymond James analyst Patrick O’Shaughnessy, Empower is the “clear #2” LOS system, and “U.S. regulators are already calling out the lack of competition among technology providers in the consumer credit space,” O’Shaughnessy said in a note. to customers obtained by Seeking Alpha.

Luis V. Sanchez, founder of New York-based LVS Advisory, voiced similar concerns on Twitter, warning that the merger would “create a mortgage data monster.”

In a conference call with investment analysts on Thursday, ICE executives said that while the deal to acquire Black Knight is not expected to close until the first half of next year, they are confident they can argue with regulators that the merger will be good for consumers.

While ICE and Black Knight both provide LOS software to mortgage lenders, the integration of some of the company’s other solutions will create a “term-of-loan” mortgage platform that will produce cost savings for consumers. , said Jeff Sprecher, president and CEO of ICE. .

Mortgage platform “Lifetime of the loan”

ICE plans to create a “lifetime” mortgage platform by integrating technology built by Black Knight with its own solutions. Source: ICE Investor Presentation.

Black Knight, for example, offers MLS solutions and real estate data capabilities that enable the search for homes that ICE misses, as well as solutions for secondary market investors and loan managers. ICE, on the other hand, considers itself to have superior lead generation and closing and post-closing tools.

Jeff Sprecher

“Black Knight’s suite of solutions spans the entire mortgage workflow and is highly complementary to ICE’s existing business,” Sprecher said. “By expanding our set of solutions beyond originations, we will be able to deliver a loan lifetime platform that reduces friction and promotes transparency throughout the workflow. The integration of our solutions will strengthen the overall mortgage ecosystem, providing more choice and providing efficiencies for lenders, managers, partners and ultimately the end consumer.

But Piper Sandler analyst Rich Repetto wanted to know if ICE might have to divest one of its businesses, like Encompass, to get approval from antitrust regulators.

ICE Chairman Ben Jackson said ICE’s Encompass and Black Knight’s Empower serve “fundamentally very different” customer bases, which the combined company will continue to serve.

Ben Jackson

“They provide a service which is an installed service. It’s a single instance for a single customer,” Jackson said of Empower. “It’s very personalized, based on the experience that lender may want to provide to their customers. Whereas at ICE, ours is a very standardized solution. And all you can do is make a basic setup around its perimeter. Our plan is to support and invest in both to really help improve industry efficiency by providing this comprehensive end-to-end service.

Jackson acknowledged that “it’s a big deal, so we expect it will take time for regulators to understand the complementary nature of our two businesses. But ultimately, we’re confident they’ll come to terms.” the same conclusion as us [ICE and Black Knight’s legal teams] did… that these are 100% complementary businesses that serve as different parts of the mortgage ecosystem.

In an investor presentation, ICE said the merger, if approved, would expand the company’s total addressable market in mortgage technology from $10 billion to $14 billion.

The company said benefits for homebuyers would include:

• Digitization and automation of loan originations that would reduce costs for all parties

• Lenders could use the data to help existing homeowners understand new loan programs that could help them save money and stay in their homes

• Linking mortgage origination and management systems could eliminate erroneous charges and reduce costs for consumers

• Integration of origination and service data will provide lenders with analytics to help them connect with potential buyers in historically underserved markets

• Lenders would get better tools to help identify potential minority biases in the home appraisal process

Black Knight reported Thursday that its revenue rose 11% in the first quarter to $387 million, with all but $56.5 million generated by its software solutions.

Anthony Jabbour

“Black Knight and ICE share a common vision and commitment to deliver a better experience for our customers and the stakeholders we serve,” Black Knight Chairman and CEO Anthony Jabbour said in a statement. “By combining our expertise, we can deliver significant benefits to our clients and consumers by improving and streamlining the process of finding a home, as well as obtaining and managing a mortgage.”

Black Knight’s board of directors has approved an agreement for ICE to acquire for $85 per share, with 80% of the $13.1 billion sale price to be paid in cash and the remaining 20% ​​in stock.

If Black Knight shareholders approve the deal, they will have the option of receiving cash or stock, subject to pro rata, with the value of the cash option and stock option being equalized at closing. .

Shares of Black Knight, which traded below $65 earlier this week, jumped to nearly $80 on Wednesday after the deal was announced, but closed at $71.98 on Thursday, which was a down day for the market as a whole.

As is often the case when a publicly traded company agrees to be acquired, a number of law firms have announced that they are investigating whether the deal adequately compensates shareholders.

In an announcement, one company, Weiss Law, noted that “at least one analyst has set a price target for the company of $92 per share, $7.00 above merger consideration per share.”

Other law firms announcing similar investigations include Ademi LLP, Brodsky & Smith and Halper Sadeh.

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