Intercontinental Exchange, Inc. (ICE - Free Report) has acquired Ellie Mae from a leading private equity firm Thoma Bravo for $11 billion in a cash-stock transaction. The acquisition was announced on Aug 6, 2020.
Founded in 1997, Ellie Mae was formed with an intention to automate and digitize the trillion-dollar residential mortgage industry. It was then acquired by Thoma Bravo, LLC, a leading private equity investment firm, in an all-cash transaction for $3.7 billion in April 2019.
The acquisition will thus establish Intercontinental Exchange as the leading provider of end-to-end electronic workflow solutions serving the U.S. residential mortgage industry and opportunity to monetize a $10 billion total addressable market that spans the full mortgage lifecycle.
Intercontinental Exchange estimates the acquisition to add $67 million to $72 million to its third quarter revenues. The acquirer’s adjusted operating expense is estimated to increase $34 million to $36 million while interest expense is expected to rise $11 million to $12 million in the third quarter. Shares outstanding are estimated between 551 million and 554 million in the third quarter including 5 million share issuance for the acquisition.
Moreover, the acquisition of Ellie Mae is expected to increase adjusted earnings per share in the first full year of ownership and realize run-rate cost synergies of $50 million to $65 million by the end of third year
Intercontinental Exchange has been working to be the leading provider of end-to-end electronic workflow solutions serving the U.S. residential mortgage industry. It made majority investment in Mortgage Electronic Registrations System (MERS) in 2016 and later acquired it fully in 2019, followed by the acquisition of Simplifile in 2019. The buyout of Ellie Mae is the third acquisition Intercontinental Exchange has made to expand its mortgage services division. The company has invested about $11.5 billion in its strategy to automate the mortgage workflow.
These entities will work as part of ICE Mortgage Technology, and will help bring together all of the key stakeholders from origination to final settlement in one digital mortgage ecosystem.
Intercontinental Exchange expects ICE Mortgage Services to bring in $1.1 billion in revenues in 2020, including Ellie Mae’s expected annual revenues of approximately $900 million. It also estimates ICE Mortgage Services pro-forma 2020 adjusted EBITDA of about $600 million including estimated 2020 Ellie Mae adjusted EBITDA of about $470 million.
Shares of the company have gained 8.2%, outperforming the industry increase of 0.2% year to date. Compelling portfolio, broad range of risk management services, timely achievement of cost synergies and solid capital position should help shares retain momentum.
The company carries a Zack Rank #4 (Sell).
Stocks to Consider
Some better-ranked companies in the finance sector include MarketAxess Holdings (MKTX - Free Report) , OTC Markets Group (OTCM - Free Report) and The Allstate Corporation (ALL - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
MarketAxess delivered earnings surprise of 3.29% in the last reported quarter.
OTC Markets Group delivered earnings surprise of 38.46% in the last reported quarter.
Allstate delivered earnings surprise of 74.47% in the last reported quarter.
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