Intercontinental Exchange Inc. envisions building a “life of loan” mortgage platform that will produce cost saving efficiencies that benefit consumers.

Intercontinental Exchange Inc.’s $13.1 billion deal to acquire mortgage software, data and analytics provider Black Knight is far from a done deal, with Black Knight shareholders and antitrust regulators yet to approve the merger.

While Black Knight shareholders may try to hold out for a better offer from ICE, the bigger threat could be gaining 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 amongst technology providers to the consumer finance area,” O’Shaughnessy said in a note to clients 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.”

On a conference call with investment analysts Thursday, ICE executives said that while the deal to acquire Black Knight isn’t expected to close until the first half of next year, they’re confident that they can make a case with regulators that the merger will be good for consumers.

While ICE and Black Knight both provide LOS software to mortgage lenders, integration of some of the company’s other solutions will create a “life of loan” mortgage platform that will produce cost saving efficiencies to the benefit of consumers, said ICE Chair and CEO Jeff Sprecher.

‘Life of loan’ mortgage platform

ICE envisions building a “life of loan” mortgage platform by integrating technology built by Black Knight with its own solutions. Source: ICE investor presentation.

Black Knight, for example, has MLS solutions and real estate data capabilities that enable home search that ICE lacks, as well as solutions for secondary market investors and loan servicers. ICE, on the other hand, sees itself as having superior lead generation and closing and post closing tools.

Jeff Sprecher

“Black Knight’s suite of solutions span across the mortgage workflow, and are highly complementary to ICE’s existing businesses,” Sprecher said. “By expanding our solution set beyond originations we will be able to deliver a life of loan platform that reduces friction and drives transparency across the workflow. The integration of our solutions will strengthen the overall mortgage ecosystem, bringing more choice and delivering efficiencies for lenders, servicers, partners, and ultimately the end consumer.”

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

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

Ben Jackson

“They provide a service that’s an installed service. It’s a single instance for a single client,” Jackson said of Empower. “It’s very highly customized, based on the experience that that lender may want to provide for their clients. Whereas at ICE ours is a very standardized solution. And all you can do is do some basic configuration around the perimeter of it. Our plan is to support and invest in both to really help drive the efficiencies through the industry by providing that complete front to back service.”

Jackson acknowledged that “it’s a large deal, so we expect it to take time for regulators to understand the complementary nature of our two businesses. But at the end of the day, we’re confident that they’ll come to the same conclusion that we [ICE and Black Knight’s legal teams] did … that these are 100 percent complementary businesses that serve 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 claimed benefits to homebuyers would include:

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

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

• Linking mortgage origination and servicing systems could eliminate erroneous fees and lower costs for consumers

• Integrating origination and servicing data will give lenders analytics to help them connect with potential buyers in historically underserved markets

• Lenders would get better tools to help identify potential minority bias in the home valuation process

Black Knight on Thursday reported revenue grew by 11 percent during 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 clients 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 to be acquired by ICE for $85 per share, with 80 percent of the $13.1 billion selling price to be paid in cash, and the remaining 20 percent in stock.

If Black Knight shareholders approve the deal, they’ll have a choice of receiving either cash or stock, subject to proration, with the value of the cash election and the stock election equalized at closing.

Shares in Black Knight, which had been trading for less than $65 earlier this week, leaped to nearly $80 on Wednesday after the deal was announced, but closed at $71.98 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 announced that they were investigating whether the deal adequately compensates shareholders.

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

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

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Email Matt Carter

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