Cloud Comes To Tech M&A

JAN 7, 2013 2:33pm ET

WE’RE HEARING...that while technology startup activity dried up in the wake of the housing crisis, now might a good time to break ground on entrepreneurial ventures.

And as long as we’re introducing metaphors like breaking ground here, the cloud may have something to do with it.

Scott Cooley knows what he’s talking about in these areas. He’s both started and sold a mortgage technology firm, and developed an LOS that he basically sold twice.

Cooley, founder of Contour Software in 1982 and now an industry consultant, told me that that he is seeing an increase in buyer interest in the M&A market for technology vendors. Problem is, with few startups in recent years, the market may be sparse.

“I think there’s been a large slowdown since the crash, and we haven’t seen much comeback yet in terms of a lot of people jumping in.”

And the buyers are picky. Potential buyers—large public companies, venture capital funds and buyout firms—want to see companies with an established revenue stream, and are particularly keen to acquire firms with at least $10 million coming in the door annually, Cooley told me.

“I think that will start to drive more entrepreneurs somewhat, because there is a real appetite for acquisitions,” he said.

But so far, not many entrepreneurs are taking the bait. In part, that may reflect a hangover from the crash and difficulty finding start up financing.

Cooley said that technology change is a constant in the industry, so recent technology evolutions are not driving or obstructing entrepreneurship among technology vendors in the mortgage space. Technology has been changing constantly since Cooley launched his software enterprise.

“It’s been that way since I basically started the mortgage technology industry back in 1982,” he said. “New technology is there every single year and it always has been that way.”

By 1995, Contour had several thousand firms using its loan origination software. Cooley sold Contour Software to First American Financial in 1998, with Cooley remaining as head of the software unit. Contour was sold again in a spinoff to Ellie Mae in 2001.

But while technology might not drive entrepreneurship, it does create opportunities for people who develop a vision of how new technology can be harnessed to improve business practices.

Cloud computing, for instance, opens up some doors for innovation, Cooley said.

Today, the title, escrow and closing side of the mortgage business may be the area most ripe for entrepreneurs seeking to reinvent the business, Cooley believes. In part, that’s because cloud computing can potentially tie everyone together more closely, with all data and documentation coming from or going to a central repository.

Entrepreneurs need to look at how technology is changing and learn how to apply those changes to find ways to do things bigger, better, faster and cheaper, Cooley said.

He advises entrepreneurs to find one function they can perform and do it really well, rather than trying to perform too many functions for their clients.

As a consultant these days, Cooley works with startups and occasionally with larger firms to help them develop their business strategies. That includes focusing on product development, pricing and marketing.

“Often my biggest help is to tell them what not to do, because I’ve seen every kind of mistake over and over again.”

He said the mortgage business is behind other industries when it comes to technology deployment, but he believes this is inevitable given the complexity of the business, the number of parties involved in mortgage transactions, and the thousands of data points that have to be managed.

Ted Cornwell has covered the mortgage markets since 1990. He is a former editor of both Mortgage Servicing News and Mortgage Technology.

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