Intercontinental Exchange Completes Its Acquisition of Black Knight
Nearly a year and a half after the initial announcement, wide-moat-rated Intercontinental Exchange ICE has completed its acquisition of Black Knight, a firm that offers data and software services for the real estate and mortgage industries. In general, we like the underlying strategy of the deal as Black Knight’s data assets will help drive Intercontinental’s broader vision of a fully electronic mortgage lending process and a more efficient mortgage bond market, while Intercontinental’s mortgage technology business will benefit from reduced cyclicality as Black Knight’s dominant mortgage servicing software business will add reliable recurring revenue. That said, we believe the attractiveness of the deal has been negatively impacted by the steps Intercontinental had to take to get the deal approved by the Federal Trade Commission. As part of the acquisition, the firm will divest Black Knight’s Optimal Blue mortgage pricing engine and its Empower loan origination system to Constellation Software. We never expected Intercontinental to retain Empower, as the firm is already the market leader in that space through its Encompass product and the merger of the two would have given the firm near total market dominance. However, Optimal Blue was part of the original strategic rationale of the deal due to its secondary marketplace for mortgage loans. To make matters worse, Intercontinental is not getting a good price for the business, receiving only $700 million, compared with Black Knight paying more than $1.1 billion for the remaining 40% in early 2022. Conditions in the mortgage industry have deteriorated since then, but Constellation is likely getting a good deal due to Intercontinental’s need to find a buyer for the asset to satisfy the FTC. We still like the strategic rationale of the acquisition, even after the divestitures, but it adds meaningful execution risk as Intercontinental will need to create significant value to justify the $11.7 billion price tag.
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.
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Speculation continues on Black Knight
Amid continued speculation on the status of its buyout deal, Jacksonville-based mortgage technology company Black Knight Inc. reported lower fourth-quarter earnings.
With rising interest rates slowing mortgage activity, Black Knight said Feb. 28 that adjusted earnings fell 21% in the quarter to $80.5 million, or 52 cents a share.
Revenue fell 1% to $383.5 million.
Black Knight agreed in May 2022 to a buyout by Intercontinental Exchange Inc., a deal that is receiving antitrust scrutiny by the U.S. Federal Trade Commission.
“Despite a very challenging time for the markets we serve, coupled with our proposed transaction with Intercontinental Exchange, our team remained focused and continued to execute against our strategic initiatives to deliver profitable growth over the long term,” Executive Chairman Anthony Jabbour said in a news release.
“While the challenging operating environment has created some near-term headwinds to our financial performance, we remain positive about our long-term growth opportunities and are committed to creating value for all of our stakeholders,” he said.
Black Knight has not been holding quarterly conference calls with analysts because of the pending merger, and the company did not say anything more about the status of the deal.
However, a day before the earnings release, Politico reported the FTC is going to challenge the $11.7 billion buyout, citing “three people with direct knowledge of the matter.”
It said the FTC will file its opposition sometime in March.
Black Knight and ICE announced an agreement March 7 to sell Black Knight’s mortgage loan origination business, called Empower, to try and satisfy the FTC’s concerns.
ICE is best known as the operator of the New York Stock Exchange but it also has a mortgage technology unit that provides software for about half of all home loan originations.
Black Knight dominates the market for processing existing mortgage loans, with nearly two-thirds of all U.S. first mortgage loans handled by its systems.
Empower is a smaller unit that provides technology for about 10% of mortgage originations, but its addition in the merger would increase ICE’s dominant position in that market.
ICE has argued that it would be able to bring efficiency to the mortgage technology market if it acquires Black Knight.
When ICE reported its fourth-quarter earnings Feb. 2, it said the company hopes to complete the acquisition of Black Knight by midyear.
Dream Finders Homes reports higher activity
Dream Finders Homes Inc. reported higher home sales activity in the fourth quarter but a sharp decline in new orders as rising interest rates affect the housing market.
The Jacksonville-based homebuilder said March 2 that fourth-quarter home closings rose 18% to 2,316 and revenue rose 29% to $1.1 billion.
Earnings jumped 51% to $86 million, or 78 cents a share.
However, net new orders for homes dropped by 44% to 1,107.
“We delivered 6,878 homes in 2022, slightly short of our goal (of 7,000), but we are still pleased with the overall results as we carry a backlog of 5,548 sold homes, valued at $2.5 billion, into 2023,” CEO Patrick Zalupski said in a news release.
Dream Finders set a lower goal of 6,000 home closings for 2023.
“We have seen an increase in the net new order rate in the first quarter to date, but there are numerous factors, chiefly higher mortgage rates, which could continue to impact sales throughout 2023,” Zalupski said.
Dream Finders, which builds homes in eight states, reported home closings in the Jacksonville market rose by 42% in the fourth quarter to 528, with the average sales price rising by 11% to $443,178.
RYAM reports fourth straight annual loss
Rayonier Advanced Materials Inc., or RYAM, reported a fourth-quarter profit but also recorded its fourth straight annual loss from continuing operations.
The Jacksonville-based maker of cellulose specialty products had net income in the quarter of $4 million, or 5 cents a share, with sales rising 34% to $500 million.
However, with losses in the first two quarters of 2022, RYAM ended with a net loss of $15 million, or 23 cents a share, for the full year.
RYAM is projecting 2023 results from continuing operations to range from a loss of $8 million to a profit of $12 million.
In a Feb. 28 conference call with analysts, CEO De Lyle Bloomquist said the company is working to reduce its debt.
“Our top priority for 2023 is to opportunistically refinance our senior notes, which mature in June 2024,” he said.
Bloomquist said RYAM has taken other steps to improve operations, including negotiating higher prices for its products.
He also said the company has made “investments to improve reliability” of its operations.
“Currently, we are experiencing some pockets of softness in demand and as a market leader, we are matching our production to meet market demand,” he said.
“While this may temporarily impact sales volumes, the improvement in reliability will allow us to better control our costs.”
Publix stock rises with earnings jump
Publix Super Markets Inc.’s stock price rose from $13.19 on Nov. 1 to $14.55 on March 1, the Lakeland-based supermarket operator said.
The company’s stock is made available for sale only to employees and is determined by an appraisal five times a year.
Publix also said sales rose 22% in the fourth quarter to $15.3 billion, helped by an additional week in the fourth quarter of 2022, compared with 2021.
The extra week lifted sales by 8.1%.
Sales at stores open for more than one year rose 12.4%.
Publix, which operates 1,328 supermarkets in seven states, said adjusted earnings rose by 34.7% to $1.3 billion, or 39 cents a share.
Tegna earnings jump on political ads
Tegna Inc., another company awaiting regulatory approval for a buyout, reported a big jump in fourth-quarter earnings, helped by increased political advertising on its television stations before the November elections.
Revenue rose 18% to $917 million and earnings rose by 39 cents a share to 97 cents.
Tegna owns 64 television stations, including Jacksonville NBC network affiliate WTLV TV-12 and ABC affiliate WJXX TV-25.
The company agreed to a buyout by hedge fund Standard General L.P. in February 2022 but the Federal Communications Commission has not yet approved the deal.
The FCC announced Feb. 24 it will hold a hearing on the deal before an administrative law judge but did not announce a date.
Tegna said in its Feb. 27 news release it “is currently evaluating its options” on the deal.
Standard General issued a separate release Feb. 27 blasting the FCC for scheduling a hearing and calling on the FCC to go ahead and vote on the transaction.
“A decision delayed is a decision denied,” Standard General Managing Partner Soo Kim said.
“Rather than rule on the transaction’s merits, as the law requires, the Media Bureau is attempting to scuttle the deal by ordering a wholly unnecessary hearing process, that if left standing by the Commission, would kill the deal.”
Graham Holdings sees political boost
The other publicly traded company owning Jacksonville television stations, Graham Holdings Co., also reported a boost from political advertising in the fourth quarter.
The diversified holding company said revenue in its television division rose 15% to $154.7 million and operating income jumped 74% to $70 million.
Graham owns seven television stations, including Jacksonville independent station WJXT TV-4 and CW network affiliate WCWJ TV-17.
Salt Life is expanding into home furnishings
Delta Apparel Inc. announced its Salt Life brand, which produces mainly apparel, is expanding into a home furnishings line called Salt Life Home.
Salt Life was founded 20 years ago in Jacksonville Beach.
Greenville, South Carolina-based Delta bought the retail brand for $37 million in 2013 and has expanded its footprint to more than 20 Salt Life stores across the country.
Delta does not own the three Salt Life Food Shack restaurants in the Jacksonville area.
“Salt Life’s brand recognition continues to grow across the United States and internationally, and we constantly look to create ways for consumers to connect with Salt Life’s unique ocean aesthetic. Expanding into home goods has been on our radar for some time now,” Salt Life President Jeff Stillwell said in a news release.
Delta reported Salt Life accounted for $60.1 million of the company’s $485 million in sales in the fiscal year ended Oct. 1.
Salt Life’s operating income was $8.2 million for the fiscal year.
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