To satisfy antitrust regulators, ICE divests itself of Black Knight’s loan origination and mortgage pricing businesses, but gets access to mortgage loan servicers and MLSs in $11.9 billion merger.

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Intercontinental Exchange Inc. wrapped up its quest to acquire rival Black Knight on Friday, by following through on a previous commitment it made to antitrust regulators: To sell Black Knight’s Optimal Blue and Empower businesses to subsidiaries of Toronto-based Constellation Software Inc.

With the close of the deal, Empower and Optimal Blue will operate within Constellation Software’s Perseus Group, which announced it’s rebranded Black Knight Origination Technologies LLC as Dark Matter Technologies. Dark Matter will continue to be based in Jacksonville, Florida, with 12-year Black Knight veteran Rich Gagliano serving as the company’s CEO.

Rich Gagliano

“We understand that our existing long-term client relationships extend far beyond innovative technology,” Gagliano said in a statement, promising that Dark Matter’s leadership team and more than 1,300 employees “will focus on a smooth, uneventful transition plan for our clients.”

As part of the Empower deal, Constellation Software also acquired Black Knight’s virtual AI assistant, AIVA; its correspondent lending system, LendingSpace; and its Exchange network of service providers for lenders and servicers.

A publicly-traded company with a market capitalization of $44.7 billion USD ($60.5 billion CAD), Constellation Software owns a portfolio of companies that provide services to a wide range of industries including real estate, financial services, mining, hospitality and healthcare.

Other companies under the umbrella of Constellation Software’s Perseus Group include lead generation and contact management system Market Leader, real estate technology provider Constellation1, SmartZip, Top Producer and Sharper Agent. Last year, another Constellation subsidiary, Constellation Mortgage Solutions, unveiled its NOVA loan origination solution, billing it as a new “gold standard in mortgage origination tech.”

Constellation Mortgage Solutions is part of the Romulus Group, a portfolio of vertical market software companies within Constellation Software’s Perseus Group.

Tom George

“With these two recent acquisitions, we have assembled an incredible portfolio of independently run companies and products in the mortgage software space including the Empower LOS, Optimal Blue, NOVA LOS, Reverse Vision, and Axacore,” said Romulus Group Co-President Tom George, in a statement. “We are excited to be able to work with all our groups to invest and grow both organically and through additional acquisitions.”

Intercontinental Exchange Inc. (ICE) had little to say about the closing of the deal Friday, except that “the divestitures of the Black Knight assets helped to secure regulatory clearance from the U.S. Federal Trade Commission for ICE’s acquisition of Black Knight.”

ICE, which closed its $11.9 billion acquisition of Black Knight on Sept. 5, said it plans to hold a conference call with investors on Sept. 28 “to discuss its go-forward plans for ICE Mortgage Technology,” the company’s end-to-end mortgage service.

ICE gets access to mortgage loan servicers, MLSs

In an exclusive interview with Forbes following the closing of the merger, ICE Chairman and CEO Jeff Sprecher said the deal builds on ICE’s previous acquisitions of Ellie Mae in 2020, Simplifile in 2019, and Mortgage Electronic Registrations Systems (MERS) in 2018, which created the foundation of ICE Mortgage Technology.

While ICE was forced to divest itself of Black Knight’s Empower and Optimal Blue businesses, it retained the solutions Black Knight provides to mortgage loan servicers and multiple listing services (MLSs), which opens up new opportunities for ICE, Sprecher said.

Jeff Sprecher

“Ellie Mae handles 50 percent of all originations, MERS has 85 percent to 90 percent of the registrations, and Black Knight holds 65 percent of the servicing market,” Sprecher told Forbes. With the closing of the Black Knight deal, “We touch nearly every home loan in some way.”

Sprecher told Forbes that he sees ICE as a facilitator that will provide information from multiple sources to lenders and borrowers, allowing borrowers to understand what equity they have in their home and what loans they can qualify for, “regardless of who is their servicer, who was the original lender or who funded the loan.”

Since announcing last year that it had reached a deal to acquire Black Knight, ICE has maintained that lenders and consumers will benefit from expected efficiencies that will reduce the cost and time required to originate and close mortgage loans.

Concessions to antitrust regulators

Thanks to its $11.4 billion acquisition of Ellie Mae’s Encompass product, ICE was already the biggest provider of mortgage loan origination systems when it moved to acquire Black Knight in May of 2022.

When the FTC moved to block the Black Knight deal in March, regulators fretted that allowing ICE to gain control of Black Knight’s Empower loan origination system “would free ICE to more aggressively raise prices that it charges mortgage lenders for origination services.”

The Community Home Lenders Association, an industry trade group representing small and mid-sized community-based mortgage lenders, also wrote Attorney General Merrick Garland a lengthy letter outlining its concerns, warning the merger “would have a significant detrimental impact on consumers that are buying a home or refinancing, since essential origination software and related services costs are generally passed along directly to the consumer.”

ICE’s original solution — to sell Empower to Constellation Software — wasn’t enough to satisfy the FTC, which noted that Constellation would still serve as a reseller of ancillary services to be provided by ICE, including Black Knight’s Optimal Blue mortgage product and pricing engine (PPE), which helps lenders make offers to borrowers.

So ICE and Black Knight agreed to sell Black Knight’s Optimal Blue business as well, providing $500 million in financing to Constellation to help close the $700 million deal.

In agreeing to greenlight the merger on Aug. 31, antitrust regulators extracted a number of concessions from ICE and Black Knight. In addition to divesting Empower and Optimal Blue, the companies agreed that ICE will seek FTC approval before acquiring an interest in another loan origination system like Empower, and provide notification before acquiring an interest in another PPE business like Optimal Blue.

The consent order the companies entered into with the FTC also grants Constellation a license to resell, with Empower, “certain other Black Knight mortgage-related products and services that would be acquired by ICE.”

“The transaction with Constellation Software will keep Optimal Blue and the Empower loan origination system together under a single highly credible owner,” Sprecher said on an Aug. 3 earnings call with investment analysts. “A related agreement will continue and expand our commercial relationship to facilitate Optimal Blue being made fully available to ICE’s customers on our open network.”

Despite having to sell Optimal Blue and Empower, Sprecher said ICE continues to expect the Black Knight deal to generate “revenue synergies” of $125 million and “expense synergies” of $200 million within five years.

“As the largest distributor of Optimal Blue via our network, we remain very excited about the value and efficiencies that the combined ICE and Black Knight entities will bring to the end consumer as well as to other stakeholders across the mortgage ecosystem,” Sprecher told investment analysts.

Originally founded 20 years ago as an energy marketplace, ICE generates most of its revenue as an operator of 12 regulated exchanges around the world, including the New York Stock Exchange.

In reporting second-quarter results last month, ICE said its mortgage technology business accounted for 13 percent of the company’s $3.78 billion revenue in the first half of the year and was not profitable, generating a $45 million operating loss.

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Email Matt Carter

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