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Shock to the system: ICE to pay $13B for rival Black Knight a mortgage data software company

In a move with ramifications for an untold number of mortgage lenders and service firms, Intercontinental Exchange, Inc., a software and data company whose mini-empire includes ICE Mortgage Technology, has bought Black Knight. The $13.1 billion mega-deal was announced in a press release Wednesday afternoon.

The move between what are generally regarded as the two biggest suppliers of mortgage loan origination software is the latest domino to fall in a mortgage market careening off the rails. It comes after the Federal Reserve announced Wednesday an additional hike in interest rates, a much anticipated move by nervous lenders, many of whom are laying off loan officers in droves.

Reports that the Jacksonville-based mortgage lending software and analytics provider Black Knight was exploring a salebecame public in April.

Though the sale would seem to signal a declining market, analysts did tell HousingWire last month that it could instead be seen as an opportunistic move. Black Knight’s financials are in excellent shape, these industry insiders asserted. The company made $208 million in 2021 net earnings, though its stock has been punished due to the shrinking mortgage business.

The transaction, already approved by both companies’ board of directors, per the release, valued Black Knight at $85 per share, a 17% premium compared to the current price. Black Knight’s stock closed at $72.84 on Wednesday, up 14.47% from the previous day, after the deal became public.

More details on the motives and money behind the deal may come Thursday morning, when Intercontinental Exchange holds its first-quarter earnings call. Atlanta-based Intercontinental Exchange stock was down 4.04% on Wednesday to $109.86.

According to a statement from Warren Gardiner, chief financial officer of Intercontinental Exchange, Black Knight will bring a high-growth, recurring revenue model. With the deal, Intercontinental Exchange forecasts $125 million in revenue synergies by year five and $200 million in savings during a five-year period.

Black Knight has approximately 6,500 employees, according to the release. Founded in 2014, the company claims leadership in the mortgage servicing software market, with a market share of 56% as of Dec. 31, 2021, according to a 10k document filed with the Securities and Exchange Commission (SEC).

The financial terms of the transaction show that Intercontinental Exchange will pay 80% in cash, funded with newly issued debt and cash on hand at the time of close. The remaining 20% are Intercontinental Exchange stocks, priced at $118.09 at 10-day average closing share price. The transaction, expected to close in the first half of 2023, needs approval from regulators and Black Knight stockholders.

Goldman Sachs and Co. and Wells Fargo Securities are lead financial advisors to Intercontinental Exchange. J.P. Morgan Securities is serving as the exclusive financial advisor to Black Knight.

This is the second major recent deal for Intercontinental Exchange in the mortgage space. In September 2020, the company acquired Ellie Mae from Thomas Bravo, for $11 billion. Shareholders received $99 in cash per share, a 47% premium to the company’s 30-day average closing share price.

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