Thoma Bravo to Acquire Ellie Mae in $3.7 Billion Deal

Cloud-based mortgage finance platform provider Ellie Mae Inc. announced last week that it has entered into an agreement to be acquired by private equity firm Thoma Bravo. The deal's equity value is approximately $3.7 billion with Thoma Bravo agreeing to pay $99 per share in cash; this represents a premium of 47 percent over Ellie Mae's 30-day average closing share price and 49 percent over the 60-day average closing share price on February 1, 2019. Following the announcement, Ellie Mae's share price soared by 19 percent in premarket trading.

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Ellie Mae was founded by Sigmund Anderman and Limin Hu in 1997. Headquartered in Pleasanton, California, the company now processes over a third of all U.S. mortgage applications. Ellie Mae's dominance in the sector has grown as rising mortgage regulation standards have required lenders to verify an increased amount of information prior to loan approval and as more lenders and borrowers make the transition from paper to online.

The company's Encompass software provides a total start-to-finish platform for mortgage originators, allowing lenders to conduct marketing efforts, originate and administer home loans, and carry out the electronic execution of closing and funding documents. At the same time, the Ellie Mae Network serves as a digital clearinghouse for loans, connecting originators with investors, lenders and service providers.

Customers of the Encompass platform can choose either a monthly subscription or can pay based on their loan volume. Investors and lenders utilizing the Ellie Mae Network play on a per transaction basis for deals completed via the network from Encompass customers. Approximately a third of Ellie Mae's revenue is ultimately volume-driven, which in part accounts for the company's 5.3 percent drop in share price over the past 12 months.

Ellie Mae's customer roster currently includes over 2,300 lenders including First American Mortgage Solutions, Academy Mortgage Corporation and Chemical Bank, and its network counts approximately 250,000 users. Thanks to its deep integration into the business processes of its customers, the company's retention rates are over 95 percent.

The acquisition deal is expected to close by the third quarter of this year. The final agreement between Thoma Bravo and Ellie Mae includes a 35-day "go shop" period during which Ellie Mae can solicit superior offers.