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Black Knight mum on report that FTC will block ICE merger

The FTC, which has been scrutinizing the Black Knight deal for months, is expected to challenge the ICE deal, according to reports

In its Q4 earnings statement on Tuesday, mortgage technology giant Black Knight remained tight-lipped regarding the Politico report that the U.S. Federal Trade Commission (FTC) will block its potential merger with Intercontinental Exchange Inc. The call instead focused on its slimmer organic growth in 2022 amid operational challenges for its clients, which stemmed from high interest rates.

Black Knight reported organic revenue growth of 4%, which “demonstrates the durability of our business model,” the firm’s chief executive officer Joe Nackashi said in a statement. “We remain focused on winning new clients, expanding and extending our relationships with existing clients through cross-sales and contract renewals, and delivering innovative new solutions.”

Organic growth in 2022 declined from the previous year’s 10%, which is in line with the mortgage analytics data company’s expectations. Kirk Larsen, Black Knight’s CFO had projected organic growth would likely fall between 7% and 8% in 2022. 

“High interest rates following the rapid rise since early 2022 caused operational challenges for our clients and prospects. Market conditions have also resulted in elevated originator consolidation, bankruptcies and associated attrition,” the company’s 8-K filing said. 

Black Knights’ 2022 net earnings of $452.5 million were more than double the previous year’s $207.9 million, and the firm’s investment in credit report services company Dun & Bradstreet Holdings, Inc. (DNB) resulted in an increase in net earnings of $306.7 million, the tech company said.

Profits in the last quarter of 2022 totaled $52.8 million, however — a decline of 36% compared to the same quarter of 2021. 

Revenue reached $383.5 million from October to December, a decrease of 1% from the same period in 2021. The company’s margin declined to 13.8% from 21.5% during the same period.

Black Knight’s software solutions posted revenue of $331 million in Q4, an increase of 1% from 12 months ago.

Of the software solutions segment, the origination software solutions revenue declined 2% in the fourth quarter from the same period in 2021 — driven primarily by new clients that were more than offset by the effect of lower origination volumes and attrition, Black Knight said in its 8-K filings.

Servicing software solutions revenue rose 2% during the same period, which was led by “revenues from new clients and cross-sales to existing clients, an increase in foreclosure-related revenues and contract termination fees, partially offset by headwinds from lower transactional revenues,” filings showed.

Revenue of its data and analytics sector declined 8% to $52.4 million in Q4 2022 from Q4 2021.

The firm attributed the decline in data analytics to new sales that were more than offset by attrition, the effect of lower origination volumes, and lower revenues related to a reduction in scope for two strategic data deal renewals in Q4 2021.

In total, Black Knight posted revenue of $1.55 billion in 2022, an increase of 5% from the previous year. Operating margin declined to 17.9% compared to the previous year’s 20.5%. 

Software solutions represented 86% of the revenues last year, with an operating margin of 44.2%, compared to 46.6% in 2021. The remaining revenue came from data and analytics, a segment with an operating margin of 24.5%, down from 28.7% in the same period last year.  

Ahead of the potential merger with rival Intercontinental Exchange Inc., Black Knight didn’t provide forward-looking guidance and didn’t host a conference call related to its financial results. 

The company’s filings with the Securities and Exchange Commission (SEC) provided more detail into the potential transaction. 

ICE-Black Knight deal

“Regulatory approvals may not be received, may take longer than expected or may impose conditions that are not presently anticipated, that could have an adverse effect on ICE following the merger or that are otherwise unacceptable to ICE,” according to the company’s 10-K filings

“The merger agreement is subject to a number of conditions that must be satisfied or waived in order to complete the merger,” the filing showed. 

If the merger agreement is terminated under certain circumstances, Black Knight may be required to pay a termination fee of $398 million to ICE, according to the filing with the SEC. 

ICE announced plans to acquire Black Knight in a $13.1 billion deal in May 2022, with a goal to complete the acquisition in the first half of 2023.

The deal, however, faces headwinds amid antitrust concerns from trade groups and some U.S. lawmakers. Opponents of the deal claimed consumers could face higher costs due to the pricing power ICE would gain in the mortgage data market and may discourage new market players.

The FTC, which has been scrutinizing the Black Knight deal for months, is expected to challenge the ICE deal, Politico reported, citing three people with direct knowledge of the matter.

A case is expected to be filed in March, and no decision would be final until then, according to the outlet. 

Both Black Knight and ICE declined to comment on the news report.

Investment bank Keefe, Bruyette & Woods (KBW) expects ICE to continue to pursue the merger and litigate, and anticipates that the deal has more than a 50% probability of closing.

“We expect resolution is more likely by the end of 2023, assuming a lawsuit is filed in March,” KBW’s note said.

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