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4 min read

ICE to Buy Black Knight – So What?

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ICE should take care to ensure that this deal does not slow the speed to market of both companies.


New York Stock Exchange-parent Intercontinental Exchange (ICE.N) just announced it will acquire Black Knight (BKI.N) in a deal valuing the mortgage-lending software and data analytics firm at $13.1 billion or about 9 times 2021 revenue.

This is the same ICE that owns Encompass, the mortgage loan origination system formerly owned by Ellie Mae, in use by over 1,350 U.S. banks and credit unions for their mortgage origination. If this deal goes through, the combined ICE will have two leading mortgage platforms, Encompass and Empower.

According to Daryl Jones, senior director and Lending and Operations practice leader at Cornerstone Advisors: “Black Knight’s mortgage servicing platform has been the system of choice for large mortgage lenders for years and will likely remain untouched. However, Empower, which is Black Knight’s mortgage loan origination system, has moved more into the mid-market LOS space in recent years and would be in direct competition with the ICE Encompass product.”

The Black Knight Empower LOS, however, supports some very large mortgage lenders across the country, which wouldn’t put it in near-term jeopardy, if at all, Jones said. “The interesting moves to watch will be in areas of point solution overlap such as CRM, document management, product and pricing, where both vendors have solutions.”

The acquisition raises some concerns given the overall size of the market that both vendors support. While Black Knight’s Empower doesn’t have a large client base in numbers at a little over 70 clients on the platform, the production running through the system is significant given the size of its clients.

Black Knight already has over half of all mortgage loans in the country serviced on its mortgage servicing platform. Couple that with the production coming through ICE Encompass and its huge client base and that is a vast majority of the market being served by one vendor across all mortgage origination and servicing.

Sam Kilmer, Cornerstone’s managing director and Fintech Advisory practice leader, stated, “Some financial institution execs complained when MeridianLink rolled up CRIF Lending and TCI in the consumer loan origination market, but I would think the ICE/Black Knight combo would be even more industry concentrating for mortgage origination.”

As a former chief product and strategy officer that worked for a firm that bought a major LOS vendor, I’ve seen that the primary factor in any purchase decision is the growth of the industry. Mortgage refinancing loans are expected to go down now that rates are going up, especially in light of the Fed’s announcement on Wednesday to raise rates by .5%. According to Jones, “As the refi boom ends, lenders will be forced to engage the purchase market and better leverage the digital capabilities that COVID forced.”

With rising rates and decreasing volumes, lenders need to get more strategic in leveraging their loan officer pool to source more purchase loans through lower cost channels. Clearly, the efforts on both platforms will concentrate efforts on a better point of sale (POS) platform. Does this announcement make Roostify and Blend nervous?

Key Questions to Ask for Encompass and Empower Clients

  • 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. How will it get there? Product and people rationalization? Who loses in the 2,600-person workforce from Encompass or the 6,500 Black Knight employees? What products survive?
  • When Cornerstone leads system selections and negotiates new contracts for mortgage origination, we often hear from our clients that they are looking to change systems for a better borrower experience, improved turn times, more automation that leads to better staffing efficiencies, and increased POS application expertise. With the confusion over roadmap and product strategy from ICE in the coming months, is this an opportunity for providers like MeridianLink, OpenClose, and Mortgage Cadence to show their roadmaps and win deals with less uncertainty?

When these big vendor deals occur, Cornerstone prays that corpocracy doesn’t drive away the talented developers and product managers who made both companies successful. ICE should take special care to ensure that owning these two companies does not slow the speed to market of both players.

It’s too soon to predict the answers, but Fintech deals are still happening, and this is another good one to watch.

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