The regulatory obstacles are not likely to derail Intercontinental Exchange's purchase of Black Knight, analysts at Keefe, Bruyette & Woods said following a conversation with executives at Boston Consulting Group.
"The conversation reaffirmed our constructive views around several aspects of the proposed transaction, including: 1) the deal has a greater than 50% probability of closing despite a likely lawsuit from the Federal Trade Commission; 2) Black Knight's Empower loan origination system will likely be divested, but should see ample buyer demand; and 3) both parties remain committed to the transaction," the KBW report, dated Jan. 19, said.
However, on Friday afternoon,
Just before 2:30 Eastern time on Friday, Black Knight was trading at $58.49 per share, following opening that morning at $58.61, according to Yahoo Finance. Within the next hour, it hit its high for the day of $60.55.
Representing Boston Consulting Group at the session was Micah Jindal, managing director, and David Lowman, senior advisor. KBW's hosts were Ryan Tomasello, who covers Black Knight, and Kyle Voigt, the analyst for ICE.
A poll of investors attending the session found a 71% average probability of an FTC lawsuit and a 62% average probability of a successful closing, compared with the current market-implied 25%-to-35% likelihood of the transaction happening.
Given the FTC's "exhaustive diligence" around the transaction, along with any uncertainty around the implications of a potential divestiture of Empower, including if the deal could go through before such a sale were to happen, the panel concluded it is unlikely it would close in ICE's first half of 2023 time frame.
In addition, "BCG did not see much relevance in the content or timing of
"Time is not on the side of the transaction and I think the longer it goes the worse it plays out," Stevens said in December after the letter was released.
At the time the deal was announced last May, ICE executives said they had
Ironically, Black Knight just got a huge win as
On the servicing side, even though ICE does not already operate a technology platform, concerns have been expressed by people, including Mike Cagney, CEO of fintech
The panelists in the BCG discussion came away from it feeling less concerned about the near-term threat to the MSP platform from Sagent.
"Healthy competition also bodes positively for the FTC's review of the merger (or ICE and Black Knight's defense of the merger in court)," the report said.
But the likelihood that mortgage volume will continue to shrink in 2023 is the bigger challenge the parties need to overcome.
"From a fundamental perspective, we came away feeling modestly more negative around headwinds for Black Knight and ICE from the depressed mortgage outlook, including a weak sales environment and potential share shifts in the origination and servicing markets," the report said. "BCG cited their forecast for $1.5 trillion of mortgage originations in 2023, below industry forecasts in the $1.7 trillion-$1.9 trillion range."
The report came out before Fannie Mae
