- Intercontinental Exchange Inc (NYSE: ICE) announced recently that it has entered into a definitive agreement to acquire Ellie Mae in an $11 billion deal
Intercontinental Exchange Inc (NYSE: ICE) — a leading operator of global exchanges and clearing houses and provider of mortgage technology, data, and listing services — announced recently that it has entered into a definitive agreement to acquire Ellie Mae, which is the leading cloud-based platform provider for the mortgage finance industry. The transaction with Ellie Mae (a portfolio company of Thoma Bravo) values Ellie Mae at approximately $11 billion. Intercontinental Exchange (ICE) is known for operating 12 regulated exchanges and marketplaces, including ICE futures exchanges in the United States, Canada and Europe, the Liffe futures exchanges in Europe, the New York Stock Exchange, and equity options exchanges and OTC energy, credit, and equity markets.
Some of the other deals that ICE made in the mortgage space also included MERS (majority stake in 2016 and remainder in 2018) and Simplifile in 2019. Based in Pleasanton, California, Ellie Mae has approximately 1,700 employees. The company was founded in 1997 with a goal to automate and digitize the trillion-dollar residential mortgage industry.
With its Digital Lending Platform, Ellie Mae provides technology services to all participants in the mortgage supply chain, including its over 3,000 customers and thousands of partners and investors participating in their open network who provide liquidity to the market. And lenders rely on Ellie Mae to securely manage and facilitate the exchange of data across the ecosystem to enable the origination of mortgages while maintaining strict adherence to various local, state and federal compliance requirements.
Ever since it acquired Ellie Mae, Thoma Bravo has partnered with its leadership team to nearly double revenue while achieving profitability and driving continued innovation in Ellie Mae’s core products. And the combination of Ellie Mae’s solutions with Thoma Bravo’s operational expertise helped the company redesign its organizational structure to scale more efficiently and focus on organic product innovation for driving long-term and sustainable growth. Plus Thoma Bravo also worked closely with Ellie Mae to buy Capsilon, a strategic acquisition that added significant product capabilities and greatly expanded the company’s total addressable market.
The whole production chain of the mortgage industry — ranging from lead generation to application, pre-closing, closing, and post-closing — has been a highly document-centric and tedious manual process. And ICE’s acquisition of MERS and Simplifile has helped to automate the post-closing process. Going forward, the addition of Ellie Mae extends ICE’s reach to the origination space.
Along with its Digital Lending Platform capabilities and its vast partner network, Ellie Mae also provides technology solutions that enable its clients to achieve greater levels of consumer engagement, efficiencies through automation, and a modernization of the loan manufacturing process through its recent introduction of machine learning and artificial intelligence. And through this complementary addition, ICE Mortgage Services will provide innovative technology that touches nearly every U.S. mortgage, accelerating additional digitization and streamlining of the mortgage manufacturing process, and ICE Data Services will be able to add to its offerings.
The transaction — which is not subject to a financing condition — is expected to close in the third quarter or early fourth quarter of 2020, following the receipt of regulatory approvals and the satisfaction of customary closing conditions.
Here are some of the financial metrics built into the deal:
— Transaction valued at an enterprise value of $11 billion with consideration in the form of a mix of cash (84% of EV) and newly issued shares of ICE common stock (16%).
— Expected ICE Mortgage Services pro-forma 2020 revenues of $1.1 billion (includes expected 2020 Ellie Mae revenues of ~$900 million)
— Expected ICE Mortgage Services pro-forma 2020 adjusted EBITDA of ~$600 million (includes expected 2020 Ellie Mae adjusted EBITDA of ~$470 million)
— Including past acquisitions of both MERS & Simplifile and, upon completion of the acquisition of Ellie Mae, ICE will have invested a total of roughly $11.5 billion in its strategy to automate the mortgage workflow
— Expected Ellie Mae transaction IRR of 10% (ICE ROIC will remain above ICE WACC in year one, growing thereafter)
— Run-rate cost synergies of $50 million to $65 million expected by the end of year three
Credit Suisse, Goldman Sachs and Wells Fargo are serving as lead financial advisors to Intercontinental Exchange — which also received financial advice from Broadhaven, Citigroup, and Moelis & Company LLC. And Shearman & Sterling LLP is serving as the legal advisor to Intercontinental Exchange with additional legal advice from Morgan, Lewis & Bockius LLP, Potter Anderson & Corroon LLP and Sullivan & Cromwell LLP. J.P. Morgan Securities LLC and Jefferies LLC are working as financial advisors to Thoma Bravo and Ellie Mae. And Kirkland & Ellis LLP is serving as the legal advisor to Thoma Bravo and Ellie Mae.
KEY QUOTES:
“Twenty years after we founded Intercontinental Exchange to provide a transparent trading platform for the energy industry, and following two decades of providing continued innovation to help customers navigate global markets, we are pleased to announce the acquisition of Ellie Mae, which will help us similarly transform the mortgage marketplace. Our planned acquisition represents a one-of-a-kind opportunity to add an extraordinary enterprise with great leadership to our family. It will also enhance ICE’s growth strategy in mortgage technology, with complementary products and a wide array of customers and stakeholders who will benefit from our core and proven expertise in operating networks and marketplaces.”
— Jeffrey C. Sprecher, Founder, Chairman and CEO of Intercontinental Exchange
“We are excited to be joining the Intercontinental Exchange family and having the opportunity to work closely with Simplifile and MERS in helping our industry to realize the true digital mortgage. We have been on a journey, as we have long said, ‘to automate everything automatable’ for the mortgage industry, and joining ICE, which has followed a parallel journey in global exchanges, will allow us to further accelerate realizing our vision. We also greatly appreciate, and have significantly benefited from, the operational and strategic support from Thoma Bravo. They were instrumental in helping us achieve this outcome, which is a great one for our customers and the industry in general.”
— Jonathan Corr, President and CEO of Ellie Mae
“We partnered with Jonathan Corr, Joe Tyrrell, and the Ellie Mae team to advance their vision to automate the residential mortgage industry while also using Thoma Bravo’s deep software expertise to greatly improve the company’s operations and accelerate growth. We are confident that being part of ICE will enable Ellie Mae to continue transforming an industry still in the early innings of digitization, and we look forward to following Ellie Mae’s continued success as part of ICE for many years to come.”
— Holden Spaht, a Managing Partner at Thoma Bravo
“This transaction will benefit ICE and its shareholders. The strength of our balance sheet, and the combined cash flows, position this deal to be accretive in the first full year and to meet all of our key strategic and financial acquisition criteria.”
— Scott Hill, Chief Financial Officer of Intercontinental Exchange
