Now that the dust has settled on ICE’s announced purchase of Black Knight, Inc., it needs to be said- Encompass did not buy Empower. Though we consistently see M&A activity in the mortgage space, it has typically been limited to one IMB, bank or credit union purchasing another. We see it on the servicing side as well. Rarely do we see it though in technology, even less common, encompassing (dad joke intended) two seemingly competitive loan origination platforms…which has the industry buzzing and people questioning the future.
However, if you look at M&A activity outside of the mortgage space, large firms purchase other competing firms to gain market share, grow brands and diversify holdings. Existing firms even create “competing” brands. Think General Mills cereals, or Ford’s stake in Mazda (or Jaguar). What about the “arm” of Aldi that owns all the Trader Joe’s in the United States (the full story on that is more time than any of us want to waste), or airlines, oh airlines, but I digress. Within virtually every other industry, having parent companies, investment firms, or even a sole company owning and operating various competing brands is normal and, in many cases, beneficial to the market.
What would I do without you Cookie Crisp??
The moral of the story is this: even though these products are similar, they all appeal at large to a specific market, and at a closer glance, are not competing in a truly head-to-head market. Take Ford for example. Does their F-150 truck directly compete with anything at Mazda (or Jaguar)? However, an entry-level or mid-sized sedan would at times. Does anything at Aldi compare to Trader Joe’s Cookie Butter or 3 Buck Chuck? Okay, so maybe the latter. They do, however, directly compete on other store brand pantry staples. So, in terms of ICE purchasing Black Knight, Inc., do Encompass and Empower compete in the LOS space at times? Absolutely.
My very unscientific guesstimate would be that they compete head-to-head in roughly 40% of all new LOS sales. There is this space in the middle where Black Knight’s Empower, over the last several years, has been configured to compete directly with Encompass- just ask the sales teams on both sides. However, Encompass as it stands, cannot directly, or effectively compete with Empower when it comes to high volume clients. It simply cannot compare to Empower’s scalability- no offense to anyone selling or supporting Encompass. By the same tune though, Empower cannot be sold at a price that would compete directly, or effectively, with Encompass’ lower volume clients- no offense to anyone selling or supporting Empower.
My advice to everyone in the origination space: Keep doing what you were doing before the announcement.
Lower volume lenders that cannot support Empower can get an LOS out of the box with Encompass. Lenders looking to scale want the configurability of Empower. Read ICE’s earning’s script here. Neither is going away. Nothing has changed with either technology and nothing will per ICE’s own statements. For lenders looking to purchase a new LOS, don’t forget the pricing and functionality you are being offered is guaranteed for the full term of the contract. The rest is up to the regulators. Until next time.
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