Intercontinental Exchange Inc. agreed to buy Black Knight Inc. for $85 a share, but the Jacksonville-based mortgage technology company’s stock has traded well below that price since the May 4 deal announcement.
That could be blamed in part on the general malaise that has depressed stocks over the past month, since the final value of the deal will be determined by ICE’s market price.
However, antitrust concerns about the deal on Wall Street appear to be a major factor.
“Investors are focused on: 1) the antitrust review of the proposed deal, including areas of the business most at risk and where concessions could be made; and 2) framing downside should the deal with ICE break,” Keefe, Bruyette & Woods analyst Ryan Tomasello said in a research note.
ICE is known mainly for operating the New York Stock Exchange and 12 other global securities exchanges.
However, ICE also has a mortgage technology business that has been growing through acquisitions.
Black Knight and its predecessor companies have long dominated the mortgage technology business, providing processing services for nearly two-thirds of all U.S. first mortgage loans.
ICE’s mortgage technology revenue of $1.4 billion in 2021 nearly equaled Black Knight’s total revenue.
A particular antitrust concern is both companies’ mortgage origination software. ICE does not offer servicing solutions for loans already made, Black Knight’s biggest business. But ICE dominates the market for loan origination software with about 45% of the market, Tomasello said.
Black Knight has been growing its origination business and is the second-largest player in that field but its share is closer to 10% of the market, he said.
Investors are concerned regulators will not want the top two companies in that field merging, especially when ICE also would add Black Knight’s dominant position in servicing software.
“While we believe ICE/Black Knight can make a strong case that the deal is not anti-competitive, we nevertheless expect the deal to face scrutiny from regulators, which could result in: 1) the deal being outright blocked; 2) divestitures and/or other concessions; and 3) an elongated review/closing process that could increase the odds of other bidders emerging should the current deal spread widen,” Tomasello said.
The merger agreement calls for ICE to pay Black Knight stockholders $68 a share plus 0.144 times the 10-day average trading price for ICE shares when the deal closes.
The $85 price was based on an average price of $118.09 for ICE shares before the agreement, but ICE had fallen to $102.70 by May 27.
That would still leave the deal price at nearly $83 per Black Knight share, but Black Knight is trading well below that.
The stock did reach as high as $79.78 on May 4 after the announcement but closed that day at $72.84 and hasn’t closed that high since.
It closed at $68.68 on May 27.
Tomasello lowered his rating on Black Knight from “outperform” to “market perform” on May 8 and set a price target of $80.
“While we recognize that the current mortgage backdrop and broader depressed tech multiple environment inevitably warrant a discount on Black Knight’s valuation, we still believe that a takeout value less than $80/share would be a suboptimal outcome for shareholders, which could begin to question the board’s rationale for selling the company at a time of trough sentiment despite Black Knight’s mostly resilient fundamentals,” he said.
Medtronic plc reported fourth-quarter revenue below expectations, but said its Jacksonville division outperformed the overall results.
The global medical device company said total revenue in the quarter ended April 29 fell 1% to $8.09 billion.
Supply chain issues and the coronavirus lockdowns in China affected results, the company said.
Medtronic does not report detailed results for the Jacksonville division, which makes surgical products for ear, nose and throat physicians. But it said the ENT business increased sales by a mid single-digit percentage in the quarter.
After the quarter, Medtronic expanded the business by acquiring California-based Intersect ENT on May 13.
“We’re excited to add their attractive, high growth, complementary products into our existing business,” CEO Geoff Martha said in Medtronic’s conference call with analysts, according to a company transcript.
“We believe we can grow Intersect’s products in the double digits over the next several years,” he said.
SG Blocks Inc. reported an operating profit of $418,892 for the first quarter and CEO Paul Galvin sees the company being cash flow positive this year after several years of operating losses.
“Many companies on Nasdaq lose hundreds of millions or more dollars before they hit breakeven and some never make any money,” Galvin said in a May 23 conference call.
“Ultimately, our goal is to achieve strong and consistent revenue growth from a diversified pipeline of projects where we control the means of delivery, and we keep getting closer to that every quarter,” he said.
Jacksonville-based SG Blocks is a modular building company that converts shipping containers for structures.
The company reported first-quarter revenue fell 6.5% to $8.6 million.
The earnings report came several days after the company said in a Securities and Exchange Commission filing that interim Chief Financial Officer Gerald Sheeran had been terminated.
Galvin, who took on the additional role of interim CFO, said in the conference call the company had a “disruption in our finance department,” without giving further details.
“I want you to know we have a solid strategy for correcting the situation and it is of the utmost importance,” he said.
Duos Technologies Group Inc. received notice from the Nasdaq Stock Market on May 24 that it regained compliance with Nasdaq’s listing requirements, the company said in an SEC filing.
Jacksonville-based Duos received a notice from Nasdaq in November it was out of compliance because its stockholders’ equity had fallen below the $2.5 million level required for listing on the Nasdaq Capital Market.
However, the company addressed the issue in February by selling additional stock that raised $5.7 million in capital.
ComSovereign Corp. said May 24 it received a notice from Nasdaq saying it is not in listing compliance because it has not filed its 2021 annual report.
As the company said previously, the report has been delayed because of accounting issues related to six acquisitions it completed last year.
The Dallas-based company was formed in late 2019 by the merger of ComSovereign Corp. and Jacksonville-based Drone Aviation Holding Corp. and operates several communications technology businesses.
ComSovereign has until June 20 to submit a plan to Nasdaq to regain listing compliance.
ComSovereign also said May 25 it was suspending monthly dividends on its preferred stock to preserve cash while it completes the audit for its annual report and it “continues to pursue the sale of non-core business operations.”
Jacksonville-based Illingworth Engineering Co. was acquired by Tampa-based Thermal Tech Inc., according to a May 27 news release by Illingworth’s investment banker, Heritage Capital Group Inc.
Terms of the deal were not announced.
Illingworth was founded in 1939 and specializes in the design, sale, repair and service of packaged boiler systems.