ICE and Black Knight find a buyer for Empower as merger scrutiny heats up

Black Knight will be selling its loan origination system Empower in a bid to save the merger deal with Intercontinental Exchange (ICE).

“ICE and Black Knight entered into the divestiture agreement in connection with efforts to secure clearance of ICE’s proposed acquisition of Black Knight under the Hart-Scott Rodino Act,” the two companies said in a statement Tuesday morning.

Both companies agreed to sell Black Knight’s Empower business, including its Exchange, LendingSpace and AIVA solutions, to a subsidiary of Canada’s Constellation Software Inc.

“The divestiture transaction is subject to the closing of ICE’s acquisition of Black Knight and other customary closing conditions,” ICE and Black Knight said.

The two companies also amended their deal terms to reduce the valuation of Black Knight to $11.8 billion, about 11% lower than the valuation when the agreement was announced last year. 

The deal with Constellation is contingent on the merger going through.

ICE’s proposed acquisition of Black Knight remains under review by the Federal Trade Commission (FTC). Following the announcement of the deal, trade groups and lawmakers addressed antitrust concerns stemming from ICE becoming the largest mortgage services company in America.

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.

Black Knight’s Empower is the second-biggest loan origination system in the mortgage space, with an estimated market share of around 10 to 15%. ICE’s Encompass LOS is easily the largest, at an estimated 40 to 45% market share.

Reuters reported in February that Black Knight would be seeking $400 million in the sale of Empower.

It’s unknown whether the sale of Empower would be enough to allay the FTC’s antitrust concerns. 

The FTC will not view the divestiture of Empower as being enough to remove the antitrust risk, Ryan Tomasello, managing director of Keefe, Bruyette & Woods, said in an interview with HousingWire

“[The FTC is] ultimately, looking to build a broader case around the vertical overlap and the two companies across the mortgage industry, not just within the specific loan origination software space, but more broadly being concerned about the high market share in multiple aspects of the of the tech stack, whether that’s in servicing origination, pricing engines.”

Politico recently reported that the government is expected to file a lawsuit to block the merger in March.

ICE 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.

This would be 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.