Thoma Bravo to Buy Ellie Mae in $3.7 Billion Home-Loan Bet

(Bloomberg) -- Private equity firm Thoma Bravo agreed to acquire mortgage software provider Ellie Mae Inc. in a $3.7 billion bet that the company can gain market share when the mortgage market recovers from its current doldrums.

Ellie Mae shareholders will get $99 per share in cash, representing a 47 percent premium to the the 30-day average closing price, and besting analysts’ expectations for the price the company could command in a deal. Shares in the company jumped to $99.45 at 9:47 a.m. New York time, up 21 percent from yesterday’s close.

The deal includes a 35-day “go-shop” period, during which Ellie Mae can seek other offers, with a $55 million breakup fee if the company accepts a bid from another acquirer.

“The technology that Ellie has is good, and I think it has a moat here,” said Carter Trent, an analyst at Stephens Inc. At the same time, “it’s a big premium. I don’t think anyone will even come close to matching it.”

The agreement comes at a time when rising interest rates have sapped mortgage volume as fewer borrowers seek to refinance and low inventory slows the pace of purchases. Fees from mortgage banking fell by about 50 percent in the fourth quarter at both Wells Fargo & Co. and JPMorgan Chase & Co., the two biggest home lenders last year.

The upside is that Ellie Mae, which has made aggressive bets on developing new software, can gain market share as mortgage volume rebounds, wrote Ross MacMillan, an analyst at RBC Capital Markets, in a recent note. Ellie Mae’s software, which helps lenders originate loans, is used on almost 40 percent of U.S. mortgages, Chief Executive Officer Jonathan Corr said in December.

“Ellie Mae is leading the digital transformation of the residential mortgage industry and we look forward to building on the company’s successes and to our partnership through this next chapter of growth,” Holden Spaht, a managing partner at Thoma Bravo, said in a statement.

Thoma Bravo, which focuses on software and technology companies, acquired another mortgage software company, MeridianLink, last June.

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