Del Mar DataTrac Inc. fits very well into the customer acquisition strategy that Ellie Mae laid out to investors as its was preparing to do its recent initial public offering, an executive with the Pleasanton, Calif.-based mortgage technology provider explained.
Jonathan Corr, chief strategy for Ellie Mae, said in an interview the company told investors it was looking use IPO proceeds to add more users to its networks so it could further monetize those users as well as the loan volume they would provide. It also wanted to add additional products for its customers, similar to its prior acquisitions of Online Docs, Mavent and Mortgage Pricing Systems.
Del Mar will add 200 customers to Ellie Mae and approximately another 500,000 loans to go through Encompass and the Ellie Mae network, Corr said. It also opens up the opportunity to sell potentially 20,000 Encompass users onto the front end of the DataTrac system.
Ellie Mae bought Del Mar DataTrac of San Diego for $17.2 million cash at closing, and future cash payments of $3 million, $3 million and $2 million to be paid over the next three years. When asked if Ellie Mae considered using some of its common stock as currency for the deal, Corr said it considered all types of options, but the IPO gave it plenty of cash and that cash was the best way to execute the deal.
He added that Ellie Mae told the markets its intention was to do multiple acquisitions “and we're continuing to look at and be open to considering other ones that fit in well with our overall strategy.”
It is not Ellie Mae's first time acquiring another loan origination system. It purchased Contour and Genesis in separate transactions in 2001. Corr said Ellie Mae and Del Mar compete for certain customers, but Del Mar has a lot of customers that just use it to do the back-office process, from underwriting through funding and secondary.
Ellie Mae has some capabilities in the back office function, but its strong suit is on the front end. “So we see a real great opportunity for the customers that have chosen to use DataTrac on the back end to offer on an Encompass solution on the front end in the short term along with an array of our products that include our closing docs and our pricing solution and our compliance solution,” he said.
There is an opportunity to bring together best elements of both platforms going forward to create a seamless end-to-end solution.
In a statement, Ellie Mae said its plans are to integrate Del Mar's DataTrac system with its Encompass product. Sales of DataTrac for use with any product other than Encompass will be de-emphasized and Ellie Mae will devote considerable resources to developing the Encompass point-of-sale component for DataTrac users by the end of this year so the combined product can be sold in the first quarter of 2012.
The combined companies' customer base has the potential to originate approximately 30% of all residential mortgages originated in the United States this year.
Ellie Mae's Encompass360 will be made available to DataTrac users as a front-end point-of-sale component.
“It didn't necessarily surprise me,” said Michael Moorhouse, Western regional manager at Summit Mortgage Corp., a privately held nonbank mortgage lender based in Minnesota. Summit uses DataTrac as its back office LOS in its 51 branches located across 22 states. Moorhouse has been a Del Mar customer since 1993, implementing the system at three different mortgage companies.
Summit was an early adopter of DataTrac, electing to switch from Encompass. Moorhouse said the company needed a tighter integration between its systems and will continue on its path of using the DataTrac platform.
