Black Knight to sell Empower loan origination software business?

Black Knight has decided to sell its loan origination software business Empower in a bid to save the $13 billion deal with Intercontinental Exchange Inc (ICE), Reuters reported, citing sources familiar with the matter.

The Federal Trade Commission (FTC) has been scrutinizing the ICE-Black Knight deal for months amid mounting concerns from U.S. lawmakers and trade groups over antitrust issues. If the deal goes through, it would make ICE the most dominant mortgage services company in America.

The mortgage data vendor has hired Truist Financial Corp. to explore the sale of Empower, which received the green light from ICE, according to the outlet. 

Black Knight has been soliciting the interest of potential buyers of Empower that could be valued at around $400 million, Reuters reported, citing sources who spoke anonymously due to the confidentiality of the matter. 

When ICE announced that it entered a definitive agreement to acquire Black Knight in May, ICE executives said they had no plans to sell Empower. The second most widely used loan origination system (LOS) serves a different market than its Encompass, the LOS with the largest market share, according to ICE executives. 

It is unclear if Black Knight is carrying out the sale process of Empower in coordination with the FTC. What’s also unknown is whether the sale of Empower would be enough to allay the FTC’s antitrust concerns.

“A review of academic research on the adequacy of proposed remedies reveals concern and skepticism over efforts to fix – rather than block – anticompetitive mergers,” Holly Vedova, director of the FTC’s Bureau of Competition, said in a speech last week without addressing the Black Knight deal specifically. 

The deal received a so-called “second request” from the FTC, a move that indicates heightened scrutiny, according to Reuters.

The FTC declined to comment on transactions. Black Knight also declined to comment on rumors or speculation about its business. ICE and Truist didn’t respond to requests for comment. 

In a report by Keefe, Bruyette & Woods, analysts said Black Knight’s decision to sell Empower “aligns with our view that, at a minimum, Empower will need to be divested for the ICE-BKI merger to gain FTC approval.” 

“Regardless, the headline, if accurate, evidences BKI and ICE’s commitment to the merger, in our view,” KBW said. 

Trade groups and investors have been voicing concerns of ICE becoming the largest mortgage services company in America should the deal go through. 

The acquisition would create a monopoly that controls the technology used to originate and service mortgages, they contend. The deal could stifle competition and discourage new market players, and raise prices for consumers, trade groups claimed.

House Financial Services Committee Chairwoman Maxine Waters sent a letter to the FTC in December raising concerns about the negative outcomes that may be passed on to consumers.

“Today, ICE and Black Knight each play a dominant role in the technology market that powers America’s mortgage originations (more than $2 trillion per year), servicing ($12 trillion in loans outstanding), consumer rate pricing, registry and consumer data repository, and consumer data and marketing activities,” Waters said. 

If ICE were to close the deal, it would be able to exert “significant market power over loan pricing for consumers, access to and sale of consumer data, and mortgage pricing software,” Waters claimed. 

ICE still expects to complete the acquisition of Black Knight in the first half of 2023 following the receipt of regulatory approvals and the satisfaction of customary closing conditions, executives at ICE said at its most recent earnings call in February.

Its SEC filings with the Securities and Exchange Commission (SEC) provided more detail, which stated that “regulatory approvals may not be received, may take longer than expected or may impose conditions that are not presently anticipated, that could have an adverse effect on ICE following the merger or that are otherwise unacceptable to ICE.”

“After the completion of the merger, we will be more leveraged than we currently are, and the financing arrangements that we will enter into will contain restrictions and limitations that could, under certain circumstances, have a material adverse effect on our business and operations,” according to its 10-K report.

This is the second major recent deal for ICE in the mortgage space following the acquisition of Ellie Mae from Thomas Bravo for $11 billion in 2020.