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Cannae Holdings Inc. and Thomas H. Lee Partners LP serve as minority co-investors in a newly formed entity

This article was written for FinLedger, HW Media’s new fintech-focused news brand designed specifically for financial services professionals in banking, insurance and real estate. Stay tuned for updates.

Just weeks after published reports that Optimal Blue was up for sale, fintech giant Black Knight Inc. announced this morning it will buy the Dallas-based company for $1.8 billion.

The price is a hefty premium over the $350 million Chicago-based private equity firm GTCR LLC paid for the company in 2016 as part of a leveraged buyout. It’s also significantly higher than the $1 billion that sources were predicting earlier this month.

Black Knight said it plans to combine its Compass Analytics business with Optimal Blue to form a new entity with minority co-investors Cannae Holdings Inc. and Thomas H. Lee Partners LP (THL). Black Knight will own about 60% of the newly-formed entity. It is funding the acquisition with cash on hand, debt financing, and equity contributions from Cannae and THL.

Optimal Blue’s online marketplace aims to connect originators, investors, and providers in the mortgage industry with each other. Nearly $2 trillion of transactions are processed across the platform each year, facilitating a number of secondary market interactions such as pricing, locking, hedging, and trading of mortgage loans. 

Founded in 2002, the company at one time was primarily focused on building products that help mortgage lenders comply with federal laws and regulations on fair lending. 

Today, about 1,000 originators and 185 investors use Optimal Blue’s product, pricing and eligibility (PPE) engine. Its network includes more than 3,500 industry participants, including brokers and service providers. The company’s PPE engine produces more than 240 million pricing quotes per year, which the company says represents about 35% of all mortgages with locked interest rates nationwide. 

Since it was acquired by GTCR, Optimal Blue acquired three companies including whole loan mortgage trade management software provider Resitrader and Comergence, a provider of risk management tools.

While the companies would not comment specifically on revenue, Barron’s reported earlier this month that Optimal Blue has $110 million in annual revenue.

In a statement, Black Knight CEO Anthony Jabbour said that his company has respected Optimal Blue “for many years.”

The acquisition, he added, combines PPE capabilities to Black Knight’s offerings and boosts its data and analytics capabilities. He said the two companies share similar SaaS (subscription-based) business models, and that the addition of Optimal Blue will be accretive to Black Knight’s key financial metrics while creating “significant value” for its shareholders.

“Combining the strengths of Black Knight and Optimal Blue will give clients of both companies additional offerings from a single provider and will significantly expand Black Knight’s opportunities to cross-sell our comprehensive solutions,” Jabbour said.

Optimal Blue CEO Scott Happ said the two companies “share similar strategies for innovation, integration and client focus, as well as a similar culture.”

“We are excited about the opportunity to be part of Black Knight where there is such a great strategic fit, strong client base and so many opportunities to deliver innovative solutions that will add value to our clients,” Happ added.

Optimal Blue says the goal of its PPP engine is to streamline the origination process for lenders by aggregating pricing and product guidelines from investors. With that aggregation, lenders can more efficiently price and originate mortgage products that can be sold on the secondary market. The PPE engine, it says, gives investors a way to retrieve and publish interest rates through automated workflow to its network of mortgage industry participants. This makes the process more efficient for the whole industry, it claims.

Optimal Blue also provides insights into pricing, enterprise data, competitive positioning and industry trends.

Optimal Blue’s Resitrader is a cloud-based loan trading platform to which Black Knight plans to add its origination and servicing data assets. Ultimately, Black Knight sees this combination being able to “further streamline the sale of loans” between its servicing clients, as well as those not currently using Black Knight’s MSP servicing software.

The transaction remains subject to regulatory approval and other customary closing conditions, but is expected to close sometime in the third quarter.

In a statement, GTCR Managing Director Collin Roche said that Optimal Blue has “transformed into a true digital marketplace.”

“It has grown its client base, expanded its integrations with the mortgage technology ecosystem, and solidified its unique position at the nexus of commerce and transaction flows within the secondary mortgage market,” he added. “We believe the company is well-positioned to continue its growth as part of Black Knight.”

Meanwhile, in the world of M&A, property data and analytics company CoreLogic said last week that it was still not willing to accept a $7 billion unsolicited takeover bid from investors Senator Investment Group LP and Cannae Holdings Inc.

This article was written for FinLedger, HW Media’s new fintech-focused news brand designed specifically for financial services professionals in banking, insurance and real estate. Stay tuned for updates.

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