This company profited from $2.6 billion thanks to crypto. What is he investing in now?


New York Stock Exchange operator Intercontinental exchange (ICE 0.84%) knows a few things about investing. The company recorded monster profits on two crypto investments and is now investing in another area of ​​its business. This time, the company could be a game-changer in the giant mortgage lending industry. Here is what happened.

What’s next after crypto?

In December 2014, before anyone had ever heard of Bitcoin, Intercontinental Exchange invested $10 million to own 1.4% of a little-known crypto exchange called Coinbase global (PIECE OF MONEY -2.89%). The exchange was firmly entrenched in the crypto frenzy years later. Although almost imperceptible at the time of his investment, he eventually sold his stake in Coinbase’s April 2021 IPO for a staggering $1.24 billion.

Intercontinental Exchange’s Coinbase investment foreshadowed another crypto-related investment. Bakkt (BKKT -2.93%) was initially launched in 2018 with majority support from Intercontinental Exchange. The company was created to provide digital wallets for institutional and consumer users to buy, sell and spend digital assets. Of course, digital assets include crypto, but also extend to airline miles, hotel loyalty points, and credit card points.

In late 2021, Bakkt merged with VPC Impact Acquisition, a special purpose acquisition company (SPAC) sponsored by Victory Park Capital, and the shares went public in October. In its annual report a few months later, Intercontinental Exchange recorded an astonishing gain of $1.4 billion on the transaction. Unlike its investment in Coinbase, however, the exchange still owns its stake in Bakkt as it sees a future in digital currency, even if it does not include cryptocurrency.

Image source: Getty Images.

More recently, however, SPAC has made a bigger investment in the mortgage tech company Black Knight (BKI -0.26%). In May, Intercontinental Exchange announced that it had agreed to acquire Black Knight for $85 per share, implying a market value of $13.1 billion. Prior to the acquisition, the exchange had a competing mortgage technology business.

Intercontinental Exchange’s Mortgage Technology business provides software for loan officers, mortgage origination, closing, funding and compliance. Black Knight’s mortgage technology business overlaps in creating and expanding the combined company’s capabilities in multiple listing service (MLS) solutions and lending. Additionally, Black Knight is a leading provider of real estate market data analytics.

Prior to the agreed tie-up, Black Knight itself made a significant investment in mortgage technology. In February 2022, the company entered into an agreement to acquire the remaining shares of Optimal Blue that it did not already own. Optimal Blue’s Mortgage Technology business provides a software suite that assists its clients with secondary transactions in the mortgage market. Ironically, Black Knight funded part of the deal with 37 million shares of Dun & Bradstreet Holdings he owned from a previous investment.

Taken together, the complementary capabilities of mortgage technology companies provide one of the premier end-to-end software packages on the market. On top of that, the combined company will have a mountain of real estate and mortgage data that it can use to bolster its data and analytics business.

Intercontinental Exchange points out that average origination costs have risen from about $4,000 in 2009 to $9,000 in 2021. costs. The savings at this level make hiring Intercontinental Exchange a very compelling proposition, especially given the massive number of originations some banks and mortgage companies are doing.

Is Intercontinental Exchange a buy right now?

The Intercontinental Exchange/Black Knight mortgage technology portfolio is a compelling reason to get excited about the stock. The mortgage loan portfolio adds to the exchange’s existing trading segment, made up of 13 regulated equity and commodity exchanges, including the New York Stock Exchange and six clearing houses.

The Black Knight deal is not expected to close until the first half of 2023, but Intercontinental Exchange expects its earnings per share to be accretive in the first year after the deal closes. Additionally, the deal is expected to reduce expenses by $200 million and provide $125 million in revenue synergies.

Shares of the company are down about 19% this year as rising mortgage rates could potentially slow the real estate market and reduce crimping fees generated by mortgages.

If you’re concerned about the same things, consider that Intercontinental Exchange expects recurring revenue from its mortgage technology segment to grow from 50% of its revenue mix to 70% after the Black Knight acquisition. The fall of the stock could represent an exceptional opportunity for long-term investors.

BJ Cook has no position in the stocks mentioned. The Motley Fool holds positions and recommends Coinbase Global, Inc. The Motley Fool recommends Intercontinental Exchange. The Motley Fool has a disclosure policy.

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