Ellie Mae, looking to expand the analytical capabilities of its customer-relationship management technology, is purchasing Velocify for $128 million in cash.
"With [Ellie Mae] generating between $30 million and $40 million in free cash flow and an estimated year-end cash and short-term investment balance of $355 million, we were not surprised to see a larger strategic acquisition completed," William Blair analyst Brandon Dobell wrote in a research note on the deal.
Depending on the release of further financial details when Ellie Mae announces its third-quarter results, Dobell could raise his 2018 EBITDA projection to between $145 million and $150 million from the current $141 million.
Ellie Mae reported second-quarter net income of $18.8 million driven largely by a tax accounting change. But it missed analysts' projections for revenue as closed loan volume was lower than expected because of the inventory shortage holding down purchases.
The inventory shortage led Ellie Mae to cut its full-year revenue projections to between $400 million and $405 million from $433 million and $440 million.
That led to a massive sell-off by investors. Ellie Mae's closing stock price on July 27 (the day the third-quarter results were released after the bell) was $109.90 per share. The next day, the stock closed at $90.69 per share and on Aug. 18, it closed at $80.86 per share.
Investors are welcoming the deal. Ellie Mae closed at $82.98 per share on Aug. 31, before the deal was announced. As of 11:14 a.m. on Sept. 1, the stock was trading at $84.25 per share.
Velocify provides analytics on sales leads for loan officers using CRM programs like Salesforce or EncompassCRM. Ellie Mae purchased Mortgage CEO in January 2014, which it rebranded as EncompassCRM. Dissatisfaction with MortgageCEO led to the October 2015 acquisition of Mortgage Returns.
"The combination of Velocify's solution with our Encompass CRM and Encompass Consumer Connect solutions will accelerate our delivery of the most robust digital mortgage solution in the market," Ellie Mae President and CEO Jonathan Corr said in a press release. "Going forward we will empower lenders' sales teams to keep pace with the speed of opportunity, drive down costs of origination through greater lead capture and conversion, and improve productivity through actionable selling insights."
Velocify automates much of the early-stage prospect outreach and qualification prior to the lead being transitioned to a CRM system.
"With numerous unqualified leads being captured either via a lender's website, other mobile portals, or lead generation companies, such as LendingTree or Credit Karma, Velocify has quantified a tendency of those lenders to let one-third of those leads fall through the cracks," Dobell said. "In addition, we view Velocify's technology as being able to speed up the outreach-to-follow-up process — an aspect that is critically important in today's low-inventory housing market where some homes are on the market for a matter of days."
The transaction is expected to close in the fourth quarter.