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<\/figure>\n<\/div>\nTop mortgage lending software and analytics provider Black Knight<\/strong> is reportedly exploring a sale<\/a> following takeover interest from several private equity firms. But don’t misread the situation \u2013 a potential deal reflects an opportunistic move rather than an act of desperation, analysts who cover the company told HousingWire.<\/p>\n Black Knight’s stock has been punished due to the company’s exposure to the mortgage business \u2013 after reaching a record of $4.4 trillion in 2021, origination volume is expected to decline in the coming years as interest rates eclipse 5%. <\/p>\n The stock had lost 30% of its value from December 31, 2021 through April 1, 2022, down to a market capitalization of just under $9 billion. The performance, however, does not reflect Black Knight’s current financial situation or the opportunities in front of it, analysts said.<\/p>\n “The company’s financials are in excellent shape; it is not having problems,” said one analyst, who requested anonymity because he was not permitted to publicly discuss rumors of a potential deal. “The potential sale appears to be a case when private equity is opportunistic because Black Knight’s stock has underperformed relative to expectations. There’s still long-term value in the company.” <\/p>\n Black Knight did not respond to a request for comment. <\/p>\n The most recent earnings report<\/a> revealed that Black Knight notched $386.2 million in revenue from October to December, an increase of 13% compared to the same quarter of 2020. The company also recorded $1.48 billion in revenue in 2021, a 19% jump compared to 2020. <\/p>\n Software solutions<\/a> for servicing and origination represented 84.7% of the revenues last year, with an operating margin of 46.6%, compared to 46.5% in the previous year. The remaining revenue comes from data and analytics, a segment with an operating margin of 28.7% in 2021, compared to 25% in 2020.<\/p>\n According to analysts, investors are missing a nuanced \u2013 but critical \u2013 detail: even though Black Knight is exposed to the mortgage industry, the share of its revenues related to loan originations is smaller than other business segments. <\/p>\n “Black Knight sells software used to either service mortgages, to originate mortgages, and then data and analytics,\u201d said the same analyst. \u201cSo, roughly 55% of revenues are related to servicing mortgages, 30% are related to originations activity for mortgages, and then the remaining is data and analytics.” <\/p>\n Black Knight\u2019s stock closed Friday at $68.02, down 0.26% from the previous day, but up 15% since the potential deal was first reported by Bloomberg on April 5. However, analysts have a target price for the company in the next 12 months over $80, an upside of around 18%. That’s the potential that private equity investors are taking into account. <\/p>\n For a potential buyer, the deal could be a way to replicate another success in the industry: the acquisition of Ellie Mae<\/strong><\/a>, a company founded in 1997 to automate and digitize the residential mortgage industry. In April 2019, private equity investment firm Thoma Bravo<\/strong> bought Ellie Mae<\/a>, a cloud-based platform provider for the mortgage finance industry, for $3.7 billion. <\/p>\n Shareholders received $99 in cash per share, a 47% premium to the company’s 30-day average closing share price. After the transaction, the technology company was no longer listed on the New York Stock Exchange<\/strong>. As a private company, Ellie Mae could foster innovation and growth of the Encompass Digital Lending Platform. <\/p>\n The strategy worked pretty well. In September 2020, Thoma Bravo sold Ellie Mae to Intercontinental Exchange<\/strong><\/a>, one of Black Knight\u2019s fiercest rivals, for $11 billion. ICE\u2019s stock closed at $129.9 on Friday. <\/p>\n “Maybe that’s one way the Black Knight deal will shake out,” said another analyst who also requested anonymity. “If a company needs to put a lot of money into improving infrastructure and increasing technology efficiency, it may be easier to do that if it is not constantly scrutinized by investors quarterly.” <\/p>\n Founded in 2014, Black Knight says it has the leadership in the mortgage loan servicing software solutions market, with a market share of 56% as of December 31, 2021, an increase of 2 basis points in comparison to the previous year, according to a 10k document filed with the Securities and Exchange Commission<\/strong> (SEC). But competition has been more intense over the last few years, another reason for a war chest. <\/p>\n Another competitor, the mortgage servicing software provider Sagent<\/strong><\/a>,<\/strong> announced in March that it had extended its software partnership with Freedom Mortgage<\/strong> for another five years. In February, Sagent announced that it had inked a deal<\/a> to create a cloud-native servicing platform<\/a> for Mr. Cooper, which has $710 billion in servicing UPB. The software company also has a mortgage servicing deal<\/a> with Mike Cagney’s Figure Technologies <\/strong>to power Figure’s mortgage servicing and help accelerate its “blockchain vision.”<\/p>\n<\/div>\n<\/div>\n The post The logic behind a Black Knight takeover<\/a> appeared first on HousingWire<\/a>.<\/p>\n