NYSE Owner Agrees to Buy Mortgage-Software Firm Ellie Mae--2nd Update
August 06 2020 - 7:49PM
Dow Jones News
By Alexander Osipovich
Intercontinental Exchange Inc., the owner of the New York Stock
Exchange, said it would acquire mortgage-software firm Ellie Mae, a
landmark bet by the exchange giant on the digitization of the U.S.
mortgage industry.
The deal between Atlanta-based ICE and private-equity firm Thoma
Bravo is valued at about $11 billion, including $9.25 billion in
newly issued debt and $1.75 billion in stock. It is expected to
close in the third or fourth quarter of 2020, pending regulatory
approval.
Ellie Mae's technology has been used to help automate the
closing of millions of home loans. Based in Pleasanton, Calif., the
firm handles the technology that underpins the entire home-loan
origination process, and its services are used in particular by
loan officers who work at nonbank mortgage lenders, analysts
say.
Thoma Bravo acquired Ellie Mae last year for $3.7 billion in
cash.
Ellie Mae's revenue has grown rapidly since the Thoma Bravo
acquisition last year, in part because the coronavirus pandemic
accelerated the use of its digital tools, ICE Chairman and Chief
Executive Jeffrey Sprecher told analysts Thursday on a conference
call about the deal.
Asked about the deal's price tag, ICE executives said they
expected Ellie Mae's business to keep growing at a fast clip for
the next decade. Mr. Sprecher said ICE would also profit from the
transaction by amassing a huge trove of mortgage data, which it
would sell alongside the financial data that it already sells from
ICE's markets.
"We will be the de facto source of information for the U.S.
mortgage market," Mr. Sprecher said.
ICE's shares dropped 2.5% in after-hours trading as investors
digested the cost of the deal.
ICE has been stepping up its presence in the mortgage market
during the past several years, in a bet that the cumbersome, often
paper-based process of closing a mortgage deal will go digital in
the coming decades.
In 2018, ICE acquired 100% of the parent company of Mortgage
Electronic Registrations Systems, a national electronic registry
for tracking servicing rights and ownership interests for U.S.
mortgage loans. Last year ICE acquired Simplifile, a firm that
facilitates electronic processing of mortgage records, in a $335
million deal.
Acquiring Ellie Mae would put ICE closer to the origination of
home loans, expanding its reach to the mortgage lenders, brokers
and other players that come together before a loan is closed. ICE's
current mortgage business is more focused on warehousing and
processing data on home loans after they close.
Ultimately, automating all of those processes will make it
faster and easier for home buyers to get mortgages, ICE executives
said. Mr. Sprecher noted on the conference call that it takes
around 100 steps, thousands of pages of documents and up to two
months to close a mortgage.
"Mortgages are so analogue, and the process underneath them is
so kludgy, that there is a real opportunity to clean them up and
ultimately make it easier for those mortgages to be sold to
investors," he told The Wall Street Journal in an interview.
The deal comes as the Mortgage Bankers Association expects
mortgage originations to hit their highest level this year since
2005. Even as the coronavirus has battered the U.S. economy,
record-low interest rates have spurred a boom in refinancings,
while a tight housing supply has kept home prices high, with young
families moving to the suburbs and wealthy city dwellers looking
for second homes.
ICE executives said on a quarterly earnings call last week that
the mortgage business had become the fastest-growing part of the
company, although it still accounts for a relatively small part of
ICE's total revenue. Mortgage-related revenue rose to $98 million
in the first six months of 2020, from $48 million a year earlier,
an increase primarily driven by the Simplifile deal, the company
said. ICE posted more than $6 billion in total revenue last
year.
The Ellie Mae acquisition is the largest-ever deal for ICE,
which was founded 20 years ago as a small electricity-trading
platform and has since grown into a global exchange operator
through a series of deals.
Led by Mr. Sprecher, ICE has a history of jumping into
businesses in the process of transitioning from analogue to
digital. In the 2000s the company did a series of deals in which it
acquired futures exchanges and closed down their old-fashioned
trading floors to convert them into all-electronic markets.
Write to Alexander Osipovich at
alexander.osipovich@dowjones.com
(END) Dow Jones Newswires
August 06, 2020 19:34 ET (23:34 GMT)
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