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Tech Niches
August 11, 2008
M&As A Plenty
In the past two weeks we saw two very big technology mergers and acquisitions with global IT companies acquiring firms with heavy ties to the mortgage market. Specifically, IBM intends to acquire ILOG and Wipro Technologies has acquired Gallagher Financial. What’s next?
In a shrinking market with fewer prospects, surely a lot of mortgage technology firms without a foothold are going to be hurting. And mainstay mortgage technology firms with good market presence are great targets for companies looking to get into the market while it’s down to reap the rewards when it returns. The ILOG and Gallagher deals surely represent the later as both are trusted players with deep roots in the mortgage space.
First, Bangalore, India-based Wipro Technologies, the global IT services business of Wipro Limited, has completed an acquisition of Gallagher Financial Systems Inc. The combined entity is now called Wipro Gallagher Solutions. No sale price was disclosed.
Wipro’s solutions include application development and maintenance, infrastructure management, e-enabling services, business process outsourcing, and consulting services, to clients in a broad range of verticals, including finance solutions and other enterprise markets like retail, manufacturing, healthcare, transportation, telecom, etc. The combination of the two companies will enable integrated delivery of technology and services for loan origination. Initially, Wipro will be able to offer a mortgage loan origination solution utilizing Gallagher’s NetOxygen technology and optimized business processes.
Second, IBM and ILOG have signed an agreement regarding a proposed acquisition of ILOG by IBM. The deal will be implemented by way of concurrent cash public tender offers in both France and the United States.
Through the proposed transaction, IBM will combine its business process management, business optimization, and service-oriented architecture technologies with ILOG's business rules management system software. The cash tender offer will be at a price of 10 euros per ordinary share and the U.S. dollar equivalent per American depositary share based on the euro/U.S. dollar exchange rate as of the settlement of the tender offers. This amounts to a purchase price of approximately 215 million euros ($340 million) on a fully diluted basis.
ILOG's board has approved the transaction and, subject to the receipt of a satisfactory fairness opinion regarding the financial terms, is expected to give a final recommendation before Sept. 15, after which the offer should be filed with the French stock exchange authority. IBM has received commitments from certain shareholders to tender their shares to the contemplated offer, which represent approximately 10% of ILOG's issued share capital.
So, what do these acquisitions really mean? It’s a great opportunity for large multi-national companies to enter or strengthen their position in the mortgage market. For example, IBM acquired an LOS, Palisades Technology Partners, and an imaging system, FileNet, prior. Now add to that a rich business rules engine like ILOG and they can offer a compelling business process outsourcing solution to mortgage lenders. The story is the same with the Wipro/Gallagher deal.
The one potential caveat could be how the products are integrated. Expanding into a new area by buying a market share leader is sound business, but I was reminded by a mortgage technology veteran that sometimes integrating that service to provide a more complete solution can be tricky. Both Wipro and IBM are large companies, which may slow this process down further depending on how bureaucratic they are and how nimble they can be. Time will tell, but surely more deals like this will be crafted in the mortgage space as the market meltdown continues. Personally, I think the industry will be stronger for it at the end of the day, but what do you think?
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Comments
Posted: 2008-08-11 16:52:22
by David Demster
Both of these acquisitions seem to make good sense strategically. Wipro is able to enter the origination space with an established vendor who deals with mid to large size lenders, thus enabling all the related service possibilties that are part of the origination space. It will be interesting to see what kind of financial investment these firms commitment to product development and customer retention. Do you know if the management teams will be retained in their entirety?
Posted: 2008-08-12 11:55:35
by Scott Cooley
It's so odd, the times we are in are absolutely the best time to do M&A. Yet, all the buyers are pretty much gone. The prices for firms are low and historically, the succesful buying is done near the bottom. The worst time to buy is at the top. Just witness all the big money spent on Tech M&A from '02-'06. Most of those deals have gone south. I applaud these two firms for stepping in at the perfect time. It takes guts to do so but going against the tide is most often well rewarded.
Posted: 2008-08-13 14:24:36
by Joe Bowerbank
I agree with Scott. There are currently a number of solid buying opportunities. Taking a contrarian viewpoint to this market with a long term strategy will serve acquirers well. To Scott’s point, many of the firms that were shopping have slowed deal searches or stopped altogether.
Posted: 2008-08-14 19:31:25
by Cary Burch
In concur with Scott’s comments. Now is the time to buy at a good value! Specifically, Indian based companies are in a good position to gobble up mortgage technology assets at a discount. They are backed with huge amounts of capital, possess lower development overhead and have business process outsourcing capabilities ready to go. The challenge is always integration, leverage and bundling the technology offerings with the BPO services. Good for IBM and Wipro. It will be interesting to watch as the lending environment changes and they adapt these newly found assets to the challenging market. Getting loans through the current pipeline is similar to watching a water polo match. There is quite a bit of action and energy treading water while trying to toss the ball in hopes to get it to goal (or a funded loan)! Coming out with greater market share in the end is always a good strategy. Cary Burch CEO LSSI http://www.lendersupport.com
Posted: 2009-01-15 05:51:32
by misba
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Posted: 2009-01-29 01:36:30
by joseph
The worst time to buy is at the top. Just witness all the big money spent on Tech M&A from '02-'06. Most of those deals have gone south. I applaud these two firms for stepping in at the perfect time. It takes guts to do so but going against the tide is most often well rewarded. joseph
