Constellation Software to pay US$700-million for mortgage service provider Optimal Blue

In a deal that could pave the way for the owner of the New York Stock Exchange to become the largest mortgage services provider in the United States, Canada’s Constellation Software Inc. CSU-T has agreed to pay US$700-million for the Optimal Blue unit of Black Knight Inc BKI-N.

Toronto-based Constellation’s Perseus operating group will pay US$200-million in cash for Optimal Blue, which provides data services to the mortgage industry, and will finance the rest with a US$500-million, 40-year promissory note at 7-per-cent interest, according to the deal terms.

But the transaction is contingent upon Intercontinental Exchange Inc. ICE-N, which owns the NYSE, first closing its US$11.7-billion acquisition of mortgage software provider Black Knight, a deal that is far from certain. That’s because Black Knight will only sell Optimal Blue to Constellation after it becomes a subsidiary of ICE.

Because ICE acquired mortgage automation company Ellie Mae from private equity firm Thoma Bravo for US$11-billion in 2020, owning Black Knight would make ICE the largest mortgage software provider in the country.

In April, citing antitrust concerns, the U.S. Federal Trade Commission petitioned a federal court in Northern California to temporarily block the ICE-Black Knight deal. A hearing on the matter is scheduled for July 24, with a ruling expected before the end of the month.

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In March, Constellation agreed to acquire Black Knight’s loan origination system business Empower, which helps banks generate loan documents, as part of ICE’s effort to appease regulators. Asked whether Black Knight’s willingness to now also divest Optimal Blue will be enough to secure regulatory approval, FTC spokesperson Victoria Graham declined to comment.

“Optimal Blue has been a sticking point in the FTC’s case to block the proposed merger of ICE and Black Knight,” RBC Capital Markets analyst Paul Treiber, who covers Constellation with the equivalent of a buy rating and a $3,200 price target, said in a note to clients published Monday afternoon.

“With Black Knight now divesting both Empower and Optimal Blue to Constellation, we believe the probability of both acquisitions closing has increased.”

If the deal does go through, it will represent only the second time in Constellation’s nearly three-decade history that the company, known as a serial acquirer, has agreed to pay as much as US$700-million on a single transaction. In 2022, it paid the same amount for Altera Digital Health, which

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