Interview Synopsis

Black Knight – Proposed Acquisition by Intercontinental Exchange

  • Public Equity
  • TMT
  • North America

Last month, Intercontinental Exchange (ICE) announced its intention to purchase mortgage software company Black Knight for USD 13.1bn.* In an Interview with Third Bridge Forum, a former senior executive at Black Knight said that ICE “gets a lot of white space” from the deal but questioned the advantages for their former company.

Intercontinental Exchange’s potential acquisition of Black Knight could further consolidate mortgage services sector

The specialist said the US mortgage market faces supply challenges and rising interest rates. They told us this could cause origination volumes to drop by 25-30% but added that Black Knight’s actual servicing volumes from fees should remain “steady”. 

Black Knight serviced approximately 72% of all outstanding US mortgages as of August 2021, according to the specialist. We were told the company’s mortgage servicing platform (MSP) is its “flagship” product and that adding MSP to ICE’s service roster would enable it to service “the entire mortgage ecosystem”. The specialist said ICE will likely connect its loan origination system (LOS) Encompass with Black Knight’s LOS, Optimal Blue, and MSP, which would reduce delays for customers and make loan conversions “quicker”. 

However, the specialist said the deal has more “upside” for ICE than Black Knight, adding that the latter will likely find it difficult to cross-pollinate with ICE customers. By contrast, ICE will be able to take advantage of the “number one pricing engine in the mortgage industry” – Optimal Blue – which Black Knight acquired in 2020, we were told. 

ICE’s acquisition of Black Knight would unite two “very strong” data lists, according to the specialist, and further create an “oligopoly” in the mortgage services sector. We were told this could lead to scrutiny from the Federal Trade Commision on the grounds that the deal is creating “market concentration”. However, the specialist is confident that the deal could go through because while both Black Knight and ICE are “direct competitors” in mortgage data and LOS, ICE is “not in the mortgage service sector”. 

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* FT

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The information used in compiling this document has been obtained by Third Bridge from experts participating in Forum Interviews. Third Bridge does not warrant the accuracy of the information and has not independently verified it. It should not be regarded as a trade recommendation or form the basis of any investment decision.

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