Does the constant grind of impressing Wall Street investors hurt the ability of publicly traded companies like Ellie Mae to provide mortgage lenders with the best technology and customer service? According to Mortgage Cadence Chairman and CEO Michael Detwiler, it doesn’t help.
When asked how
“We don’t want to force change with our customer base. We believe that is the single most invasive thing you can do to a client in a situation like this,” Detwiler said in an interview with Mortgage Technology.
“As a private company, rather than worrying about share price or quarterly profitability, we are able to focus exclusively on the satisfaction of our clients and doing those things that make their experience better and improve their overall operation,” added Detwiler in a not-so-subtle jab at competitor Ellie Mae, which completed its IPO in April 2011.
But Ellie Mae Chief Operating Officer Jonathan Corr dismissed the notion that being publicly traded negatively impacts lender clients.
“It may make it even more of a demand on a public company, because everything you do is very transparent. Every customer you lose is much more transparent than in a private company. You just have to share a tremendous amount of information,” Corr told MT.
Mortgage Cadence’s Prime Alliance strategy differs from
Corr said the difference between the two acquisitions is that Mortgage Cadence and Prime Alliance serve different target markets. Mortgage Cadence’s flagship Orchestrator LOS is a highly configurable system designed for larger lenders. Last year, it
“They have two very different customer bases, so in terms of supporting both those bases on different loan origination platforms for an extended period of time, it may make a lot more logical sense to Mortgage Cadence,” Corr said. “The problem is that you really don’t necessarily gain efficiencies. Any time you combine companies, whatever industry they’re in, you’re looking to gain synergies and efficiencies.”
Detwiler said the benefits of minimal disruption to users’ experience outweigh the potential efficiencies and cost savings of streamlining systems.
“You can’t accomplish that if you’re trying to force your clients to do things in order to enhance your bottom line,” he said. “We understand that as a private company, we enjoy that luxury to do what’s best for our clients, versus what’s best for the bottom line.”
Ellie Mae’s DataTrac strategy parallels the path it took early in its history, when it acquired and combined the Contour and Genesis LOS platforms in 2001. Back then, Ellie Mae maintained support for the two platforms while it worked to combine the best of each system into Encompass, gradually migrating customers to the new technology.
“The strategy is a real benefit to our customers because of instead of support of multiple platforms and doing things multiple times, we’re combining efforts and putting it into one platform so our customers get a lot more benefit in terms of resources,” Corr said.
“In any acquisition, you’ve got to figure out how to create efficiencies. You want to create one plus one equals three because you’re paying for the acquisition,” he added.
Detwiler said acquiring Prime Alliance was motivated by more than just a desire to increase its customer count and top-line revenue. He added that Mortgage Cadence evaluated 13 potential acquisitions over the past two years.
“If you want to preserve your clients and make sure they have the best experience and help them in challenging times from a regulatory perspective, you don’t acquire a company and then start cramming down their throat the requirement that they change, that they move to a different platform,” Detwiler said.
“If all we cared about is profitability, then this would be a cut staff, get rid of people you’re used to working with, force you to move to new technologies [strategy] to drive profits to the bottom line,” he added. “This is not Mortgage Cadence’s strategy and it’s not something we would engage in.”
Still, Mortgage Cadence does have investors to answer to, namely private equity firm Monitor Clipper Partners,
“I’m a shareholder and I want to do what’s best for me and I believe that with the strategy that we’re pursuing of focusing on customer service and innovative technology, the profits will come because when you focus on customer service, the customers flock to you.”
But Corr, who’s worked at companies backed by private equity and venture capital firms, argued that the pressures for profit are greater with private backers.
“Venture guys are as demanding, if not more demanding, than public shareholders. And they’re on your board and you’re talking to them every month,” Corr said. “They want a return on their investment and their expectations of return on investment I would argue are higher than the public markets because they’re taking more risk with a private company that doesn’t have the financial foundation and necessarily the heft.”
