New York Stock Exchange owner Intercontinental Exchange has struck the largest deal in its 20-year history, agreeing to pay $11bn for Ellie Mae to charge its efforts to modernise the US mortgage data market.

The cash-and-shares purchase from private equity group Thoma Bravo marks a decisive pivot for the Atlanta-based company, which has become a $52bn financial markets juggernaut by running some of the world’s biggest exchanges, clearing houses and index providers.

The deal represents a significant premium to Ellie Mae’s $3.7bn valuation last year when Thoma Bravo acquired the business in an all-cash transaction.

As part of Thursday’s deal, Thoma Bravo will receive 16 per cent of the price in newly issued ICE shares, while the remainder of the transaction will be paid in cash. 

It is the latest mega merger and acquisition in the US since the beginning of the summer after the earlier phase of the coronavirus pandemic had brought dealmaking to a complete halt. 

Fuelled by cheap cash and a robust equity market, companies are seizing the moment to execute large deals. This week alone Seven & i Holdings bought Speedway petrol stations for $21bn, virtual care company Teladoc Health acquired rival Livongo for $18.5bn and Blackstone took control of Ancestry.com in a deal worth $4.7bn.

Founded in 1997, Pleasanton, California-headquartered Ellie Mae provides non-bank lenders and credit unions with technology to originate residential mortgage loans, helping to automate a notoriously paper-based home-loan industry. Last year it made $900m in revenue and $470m of adjusted earnings before interest, tax, depreciation and amortisation.

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The deal will see ICE push further into the US mortgage market after smaller deals to buy Mers and Simplifile, and supplement its trading and bond data businesses. ICE’s growth has been turbocharged by acquisitions, and it is known for transforming musty financial institutions into lucrative high-tech trading venues.

In recent years, Jeffrey Sprecher, ICE chief executive, has been looking beyond its core business of exchanges and earlier this year failed in an approach to eBay, the auction site.

The mortgages business has been the fastest-growing part of ICE in the past three months, in part due to strong refinancing volumes after the Federal Reserve cut interest rates to zero in March, and it expected the trend to continue for several years.

On an earnings call last week Mr Sprecher described ICE as “building the clearing house for the mortgage industry” and said the market “could prove to be another important chapter in ICE’s 20-year evolution”.

ICE has said the total market could be worth as much as $10bn and forecast technology for mortgage applications and records would become up to 17 per cent of group revenues after the deal closes.

ICE said it expected the deal to achieve run-rate cost synergies of between $50m and $65m within three years. The transaction is expected to close by the end of the year.

Via Financial Times