TheMReport — News and strategies for the evolving mortgage marketplace.
Issue link: http://digital.themreport.com/i/1345021
16 | M R EP O RT FEATURE strength is attracting investors from outside as well as from the traditional mortgage industry/real estate investor. "The investment community is dying to invest in financial services," Camerieri said. COVID-19 has also made some older people more introspective about life, so some older indi- vidual owners are more interested in unlocking the capital in their investments, Graham says. "They're closer to retirement age than to the start of their careers," Graham said. "At some point, they want to take their chips off the table." Advantages of Going Public T here are several advantages of going public. First and fore- most, private owners can unlock capital while still maintaining control of the company. Graham and Camerieri observed that the original owners are still maintain- ing majority ownership after many of these IPOs, but they have better returns on their money through the IPOs than if they had simply let their investment in the com- pany grow as the company does. "You can double down and keep money in the retained earn- ings," Graham said. "But if the value of the business falls, you can lose that money." IPOs provide a company with additional capital to grow further and invest in strengthening the business through more efficient processes. "A publicly traded company has better access to the capital markets, including debt and equity." Wood added. "When people know the true value of a company, it's easier to raise capital if you need to." A publicly traded company also has better options when it comes to compensation plans than private firms, Wood said, adding that with publicly traded shares, stock compensation packages can be used to help retain top executives and other talent. Rocket Companies, the parent of Quicken Loans and Rocket Mortgage, started the recent trend, raising $1.8 million with the stock debuting at $18 a share in August of 2020. Guild Holdings, Guild Mortgage's parent company, fol- lowed in October, with the IPO priced at $18 a share. United Wholesale Mortgage (UWMC) launched January 22 at $11.95 a share, going public via a merger with Gores Holdings IV, a special-purpose acquisition company (SPAC) that created a $925 million infusion resulting in a combined company with a $16.1 billion valuation. SPACs operate by raising funds from investors and seeking out private compa- nies to take public. UWM is the nation's second- largest mortgage originator, generating $54 billion in home loans during the third quarter of 2020, outpaced only by Rocket Mortgage. The most recent mortgage company to go public was Home Point Capital, the parent company of Home Point Financial Corp. It had planned to go public at $13 per share on January 29, but the shares never reached the planned level, trading instead at $11.92 per share. Despite Home Point's debut not reaching the planned IPO price, financial analysts cited a plethora of IPOs the first month of the year as the likely culprit, rather than any issue with Home Point itself. An IPO spokesperson said the company couldn't comment due to the post-IPO quiet period, which ends when the company issues its first quarterly earnings report. In addition to the above deals, in September, Intercontinental Exchange (NYSE: ICE) received regulatory approval and fully completed its $11 billion acquisition of Ellie Mae from leading private equity firm Thoma Bravo. "We are excited to begin the next important chapter in our journey to digitize the residential mortgage industry," said Jeffrey C. Sprecher, Founder, Chairman, and CEO of Intercontinental Exchange, in a prepared statement at the time of the deal. "Ellie Mae's industry leadership and best-of-breed technology will better enable us to further accelerate the automation of the mortgage origination workflow, which will benefit stakeholders across the production chain, including consumers." Mortgage companies with an- nounced IPO plans at this time include loanDepot, Caliber Home Loans, and Finance of America. They all announced their initial plans last year but haven't made any further public statements about those potential offerings. There could be other IPOs in 2021 as well. Graham urges any mortgage lender considering an IPO to strike before today's strong market starts to reverse. "If the consensus market M&A Market Remains Strong G oing hand-in-hand with the active mortgage IPO market, the companies providing the technology to make mortgage companies more efficient have also become more attractive, leading to a wave of mergers and acquisitions. Three main drivers of M&A within the mortgage technology industry include accelera- tion of digital mortgage and eClosing, due in part to the pandemic; the fragmented state of mortgage technology today and the drive toward critical mass; and the attractiveness of the mortgage and real estate industries from an investor standpoint. That's according to John Guzzo, Managing Director of Berkery, Noyes & Co., LLC, an independent invest- ment bank focused on mergers and acquisi- tions advisory, debt and equity financing, and valuation services. SitusAMC has been very active on the acquisitions front during the last few months, bringing Assimilate Solutions, LLC, a provider of mortgage and title knowledge process out- sourcing and information technology outsourc- ing solutions, under its umbrella. It's the fifth acquisition in as many months for SitusAMC, which since September has disclosed that it closed deals to purchase ReadyPrice, Cohen Financial, ComplianceEase, and rSquared CRE. ReadyPrice's mortgage technology connects mortgage loan originators (MLOs) and lenders to facilitate more efficient loan originations. Cohen Financial offers a third-party loan servicing and asset management platform. ComplianceEase provides automated compli- ance software. rSquared features valuation, un- derwriting, and asset management software, as well as budgeting and reforecasting software. Attractive acquisition candidates include scalable companies that use technology to automate processes; that are highly compliant (due to the regulatory nature of the industry); that have growing cash flows; and that have a loyal, blue-chip customer base and a strong 16 | M R EP O RT