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Black Knight is selling Empower to close ICE deal?

Black Knight is reportedly putting the Empower loan origination software up for sale to obtain antitrust approval for Intercontinental Exchange’s acquisition. 2 most popular system behind acquirer ICE Mortgage Technology’s Encompass. Reuters reported that Black Knight has hired Truist to handle the sale.Intercontinental Exchange, on the other hand, at that time said since the two platforms have different customer segments, it was not anticipating having to sell Empower. “However it is not clear if the Empower sales process relates to a consent order with the Federal Trade Commission or is a proactive step by Black Knight and ICE in bolstering their defense in a possible case,” Ryan Tomasello, an analyst at Keefe Bruyette & Woods, said. He cited the merger between UnitedHealth & Change Healthcare as an example. The Department of Justice filed a lawsuit to stop the transaction. However, a federal judge dismissed the case and ordered Change Healthcare to continue with its planned sale of ClaimsXten to allow the deal to proceed. Because of the power that the combination would have across the industry spectrum, however, the Community Home Lenders of America (a deal opponent) commented that Empower was not enough movement by the companies to force Empower out of the deal’s scope. The transaction would bring ICE’s Encompass, the most popular LOS, under one roof with Black Knight’s MSP, the dominant player in servicing technology. “A sale would be constructive and welcome, but it would not address the concerns of CHLA,” Scott Olson, executive Director of the CHLA, stated. “The integration of origination services and servicing services would still create a market power that could lead lenders to have to accept practices and pricing that do not reflect the market,” said David Stevens (CEO of Mountain Lake Consultant, and former CEO of Mortgage Bankers Association). It might not be enough for support to move the needle in favor of the deal. However, ICE would not be discouraged by a wider divestiture (e.g. MSP) or rejection. Stevens pointed out the MERS acquisition as an example of how ICE had been patient and is trying to expand their presence in the mortgage market. Stevens was a board member of MERS at the time and noted that the process of acquiring MERS took three years from start to finish, largely due to an Office of Comptroller of the Currency consent. Further divestments would delay the merger and some parties, including ICE investors, might not be as tolerant of the timeline.ICE might go after other targets if the deal gets the kibosh, possibly another servicing platform such as Sagent, which Stevens noted has been growing its market share.Black Knight already agreed to sell TitlePoint to its former corporate parent Fidelity National Financial because of this deal.A paper issued by Federal Financial Analytics on Feb. 6 called on regulators to reject the transaction because ICE, which also owns the New York Stock Exchange among other entities, already poses broad systemic risks to the economy.That is on top of the “unrivaled power” ICE would have in the U.S. mortgage and housing markets.But if it was approved “and even if this is accompanied by certain constraints, then the Financial Stability Oversight Council should quickly designate ICE as a whole as a systemically important financial institution and bring the full scope of its activities across the global financial market and U.S. residential mortgage finance under safety-and-soundness, resolvability, and consumer protection regulation,” the paper said.It mentions the possibility of post-merger divestitures, but said that “would be a complex regulatory undertaking that might permit considerable arbitrage and evasion. Stevens said that he respects ICE but is wary of companies that can control the market. He stated that unless there is an overwhelming reason to continue, which I don’t see, I believe the creation of a monopoly within this sector will only prove to be a long-term challenge for the overall mortgage industry as well as for consumers. Although Black Knight’s stock price has seen a slight increase since the Black Knight-ICE deal was announced on May 4, 2022, it still closed at $72.84 on Thursday. It opened at $62.45 the next morning and was up to $64.89. By 11:30 a.m. on Friday, ICE’s stock was up 75c per share to $108.29. Truist did not return requests for comment. Black Knight, ICE, and the FTC declined comment.