MortgageTech – M&A Resilience

In a tale of two conferences, we attended the Mortgage Bankers Association annual event in Denver and noted a sense of enthusiasm and activity. This was a notable turn positive from the Secondary & Capital Markets event in May. My former boss at Goldman Sachs used to say – “sentiment has to turn before a market does”. For MortgageTech M&A, we believe this suggests a positive turn ahead.

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While the graphic above highlights the lumpiness of large transactions, the core MortgageTech M&A has proven to be resilient, including recent positive developments:  

• We are seeing niche technology solutions coming to market – very specialized examples in the Product Pricing Engine arena and Data & Analytics
• PE Buyers are coming back online with priorities in add-ons in Origination Analytics, Proprietary Data Sets, and Specialized AI applications
• Other players are adopting a ‘wait and see’ approach in 2025

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While transaction activity is well below trend line, the market did experience several large transactions over the prior two years:

• The dust is settling with ICE and their Black Knight merger
• Constellation Software (Perseus group) (TSX: CSU) begins to ramp up their Optimal Blue and Dark Matter (Empower) carveouts with a super focus on the Mortgage Arena
• Mr. Cooper closed on its acquisition of Flagstar’s MSRs in early November
• Trimont signed a definitive agreement to acquire Wells Fargo’s third party commercial real estate serving business

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While the slowdown in MortgageTech M&A is no surprise, it is surprising how close to trendline 2024e may achieve. More promising are the “green shoots” of activity we see for 2025, as the industry dusts off the prior narratives (e.g. automation, consolidation) and looks forward to the next wave (e.g. AI and Blockchain). We expect the following themes to drive M&A:

• Breadth & scale: As incumbents seek to scale up with broader offerings – the Secondary trading market presents a key opportunity
• GSE reshuffle: Watch the new administration bring forward changes already in motion – note Fannie’s (OTCMKTS: FNMA) stock has tripled following the election
• Surges in the non-qualified mortgage market: As conventional requirements shift and secondary markets reemerge – Corelogic noted a doubling of the Non-QM market as the composition of these loans become less risky
• Emerging technologies: There's increasing interest in AI, machine learning, and automation to streamline operations and improve decision-making

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While the pace of M&A may have slowed, the MortgageTech industry remains dynamic, with continued innovation and consolidation expected in the coming years.

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Sources:

• HousingWire - The 2024 Mortgage M&A Playbook
• https://www.corelogic.com/intelligence/non-qm-mortgage-market-2024/

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DISCLAIMER This presentation is intended for information and discussion purposes only and does not constitute legal or professional investment advice. Statements of fact and opinions expressed are those of the participants individually and, unless expressly stated to the contrary, are not the opinion or position of Harbor View Advisors, LLC (“HVA”). The information in this presentation was compiled from sources believed to be reliable for informational purposes only. HVA does not endorse or approve, and assumes no responsibility for, the content, accuracy or completeness of the information presented.