Intercontinental Exchange Inc. (ICE) and Black Knight Inc. on Monday announced an agreement to sell Black Knight’s Optimal Blue business to a subsidiary of Constellation Software Inc.
The deal is contingent on the closing of ICE’s acquisition of Black Knight, which was originally announced in May 2022 and is being contested by federal regulators. It is the second proposed divestiture of a Black Knight business that is intended to help satisfy antitrust concerns raised by the Federal Trade Commission.
Under terms of the agreement, Constellation will acquire Black Knight’s Optimal Blue business for $700 million, the companies said in a news release. The structure of the proposed transaction includes a payment by Constellation of $200 million in cash, with the remainder financed by a $500 million promissory note issued by Constellation to Black Knight, as a subsidiary of ICE, at the closing of the transaction.
The divestiture transaction is subject to the closing of ICE’s acquisition of Black Knight; the closing of Constellation’s acquisition of Black Knight’s Empower loan origination system (LOS) business that was announced in March, and other customary closing conditions, the companies said. The sale of Empower also is subject to ICE closing its acquisition of Black Knight.
Constellation Software is based in Toronto, Canada, and acquires, manages, and builds vertical market software businesses.
Divesting both Empower and Optimal Blue is intended to help secure clearance of ICE’s proposed acquisition of Black Knight under the Hart-Scott Rodino Act, the company said.
In April, the FTC filed a petition in federal court seeking a temporary restraining order and preliminary injunction to halt the sale of Black Knight to ICE.
The petition was filed in U.S. District Court for the Northern District of California, San Francisco Division. The FTC said it chose the district for its petition because ICE’s Mortgage Technology business unit is headquartered in San Francisco.
The FTC had said on March 9 it would move to block the sale. The commission initiated an administrative proceeding by filing an administrative complaint against the deal, stating the sale would drive up costs, reduce innovation, and reduce lenders’ choices for tools necessary to generate and service mortgages.
Last month, the FTC postponed the administrative hearing on the sale to allow a federal court to rule first on its request for the preliminary injunction in the case. The commission rescheduled the evidentiary hearing in the case for 10 a.m. on Sept. 25, and extended “all related pre-hearing deadlines” by 75 days.
In its petition for the injunction, the FTC stated it “requires the aid of this court to maintain the status quo and prevent interim harm to competition during the pendency of an administrative proceeding on the merits.”
The FTC also stated that ICE’s Encompass loan origination system (LOS) and Black Knight’s Empower LOS are the two largest systems in the U.S. Both companies also offer ancillary services, it states, including Black Knight’s Optimal Blue product pricing and eligibility engine (PPE), “software that allows a lender to identify potential loan rates for a borrower, determine the borrower’s eligibility for a given loan, and lock in the loan’s terms for the borrower.”
The petition adds, “Black Knight’s Optimal Blue is the clear industry leader, serving lenders that originate as much as 40% of the nation’s residential mortgages each year.”
ICE’s Encompass Product and Pricing Service PPE (EPPS) is a close second, it notes.
Based on the potential sale of Empower, the overall price to acquire Black Knight was reduced from $13 billion to $11.7 billion, the companies said. The companies did not say how the potential sale of Optimal Blue would affect the sale price.
Intercontinental Exchange Inc. is a Fortune 500 company that designs, builds, and operates digital networks. It also provides financial technology and data services across major asset classes, and operates the New York Stock Exchange.
ICE Mortgage Technology is digitizing the U.S. residential mortgage process, from consumer engagement through loan registration.
Black Knight is a software, data, and analytics company that serves the mortgage lending and servicing and real estate industries, as well as the capital and secondary markets.
