In the past two weeks we saw two very big technology mergers and acquisitions with global IT companies acquiring firms with heavy ties to the mortgage market. Specifically, IBM intends to acquire ILOG and Wipro Technologies has acquired Gallagher Financial. What’s next?
In a shrinking market with fewer prospects, surely a lot of mortgage technology firms without a foothold are going to be hurting. And mainstay mortgage technology firms with good market presence are great targets for companies looking to get into the market while it’s down to reap the rewards when it returns. The ILOG and Gallagher deals surely represent the later as both are trusted players with deep roots in the mortgage space.
First, Bangalore, India-based Wipro Technologies, the global IT services business of Wipro Limited, has completed an acquisition of Gallagher Financial Systems Inc. The combined entity is now called Wipro Gallagher Solutions. No sale price was disclosed.
Wipro’s solutions include application development and maintenance, infrastructure management, e-enabling services, business process outsourcing, and consulting services, to clients in a broad range of verticals, including finance solutions and other enterprise markets like retail, manufacturing, healthcare, transportation, telecom, etc. The combination of the two companies will enable integrated delivery of technology and services for loan origination. Initially, Wipro will be able to offer a mortgage loan origination solution utilizing Gallagher’s NetOxygen technology and optimized business processes.
Second, IBM and ILOG have signed an agreement regarding a proposed acquisition of ILOG by IBM. The deal will be implemented by way of concurrent cash public tender offers in both France and the United States.
Through the proposed transaction, IBM will combine its business process management, business optimization, and service-oriented architecture technologies with ILOG's business rules management system software. The cash tender offer will be at a price of 10 euros per ordinary share and the U.S. dollar equivalent per American depositary share based on the euro/U.S. dollar exchange rate as of the settlement of the tender offers. This amounts to a purchase price of approximately 215 million euros ($340 million) on a fully diluted basis.
ILOG's board has approved the transaction and, subject to the receipt of a satisfactory fairness opinion regarding the financial terms, is expected to give a final recommendation before Sept. 15, after which the offer should be filed with the French stock exchange authority. IBM has received commitments from certain shareholders to tender their shares to the contemplated offer, which represent approximately 10% of ILOG's issued share capital.
So, what do these acquisitions really mean? It’s a great opportunity for large multi-national companies to enter or strengthen their position in the mortgage market. For example, IBM acquired an LOS, Palisades Technology Partners, and an imaging system, FileNet, prior. Now add to that a rich business rules engine like ILOG and they can offer a compelling business process outsourcing solution to mortgage lenders. The story is the same with the Wipro/Gallagher deal.
The one potential caveat could be how the products are integrated. Expanding into a new area by buying a market share leader is sound business, but I was reminded by a mortgage technology veteran that sometimes integrating that service to provide a more complete solution can be tricky. Both Wipro and IBM are large companies, which may slow this process down further depending on how bureaucratic they are and how nimble they can be. Time will tell, but surely more deals like this will be crafted in the mortgage space as the market meltdown continues. Personally, I think the industry will be stronger for it at the end of the day, but what do you think?
