Intercontinental Exchange’s most recent aggressive move raises brows

An unidentified man wears a facial mask near the New York Stock Exchange, owned by Atlanta-based Intercontinental Exchange. This week, ICE made a $11 billion bet on a California company that has reaped large profits as finance moves online during the pandemic. (Luiz C. Ribeiro/New York Daily News/TNS)
An unidentified man wears a facial mask near the New York Stock Exchange, owned by Atlanta-based Intercontinental Exchange. This week, ICE made a $11 billion bet on a California company that has reaped large profits as finance moves online during the pandemic. (Luiz C. Ribeiro/New York Daily News/TNS)

Intercontinental Exchange’s presence in Atlanta is low-key, but the company is an ambitious global player in finance.

It reminded everyone of that on Thursday, when it placed a big bet on its future.

ICE announced a $11 billion deal to buy Ellie Mae, a cloud-based platform used by the mortgage finance industry. Once completed, it will be the largest deal ICE has made in its two decades.

The agreement raised eyebrows: California-based Ellie Mae is a rapidly growing company that sold for only about one-third that price less than two years ago. ICE agreed to pay nearly twice its own annual revenues.

“There were a couple things that gave investors some pause,” said Kyle Voigt, an analyst at Keefe, Bruyette & Woods. “Are you buying a business that may be at peak volumes? Could there be headwinds there?”

Even though Ellie’s Mae annual revenues surged from an estimated $480 million two years ago to $900 million now, some worry that the company has been riding a wave of home purchases and refinancing that may not last.

The chance that ICE was overpaying for Ellie Mae sent ICE stock dipping in after-hours trading and in the opening trades on Friday.

But a closer look showed the reasons that the deal will boost profits, Voigt said. “We clearly like the deal.”

Ellie Mae is owned by a private equity firm, which typically squeezes costs out of a company before selling it, he said. “But the opposite happened here. They invested in Ellie Mae.”

During a conference call with analysts late Thursday, ICE Chief Executive Jeffrey Sprecher called Ellie Mae “a one of a kind digital platform” that is used in nearly half the residential mortgages in the country.

Shares of ICE rebounded modestly Friday to finish the trading day at $100.96 per share, near its year-high of $101.93. During the pandemic-triggered stock drops earlier this year, ICE fell as low as $63.51.

Rosenblatt Securities analyst Kenneth Hill maintained a buy rating on shares of ICE, setting a price target of $104 a share. Others were even more optimistic. Oppenheimer, for example, rated ICE a buy with a $109-a-share target.

At least for now, Ellie Mae’s 1,700 workers are not joining the 1,000 employees that ICE has in Atlanta, said ICE spokesman Josh King.

In general, the company may keep a low-profile, but its heft and aggressiveness have had an impact on the region, King said. “We have a large workforce in Atlanta and that has helped to spread the financial tech expertise and reputation of Atlanta to all the global capitals.”

And when it comes to making high-stakes financial bets, ICE — which has about 6,000 employees worldwide — has never been shy. The company has purchased a number of financial exchanges, most famously the New York Stock Exchange in an $8.2 billion deal in 2012. Three years later, ICE bought Interactive Data Corp., a technology platform, for about $5.2 billion.

ICE bought a majority stake in Mortgage Electronic Registration Systems, in 2016, then the remainder in 2018. It acquired Simplifile, a document recording service, last year.

“They are just so diversified,” said analyst Voigt, of Keefe, Bruyette & Woods. “There’s not one single thing that can knock them off axis. There’s no single thing that can make or break this company.”

ICE has been in the news more than usual lately because of the December announcement that Gov. Brian Kemp was appointing Kelly Loeffler to fill retired U.S. Sen. Johnny Isakson’s seat until a special election could be held. Loeffler — who is married to Jeffrey Sprecher, ICE’s chief executive — worked for ICE for about 18 years and was head of investor relations, marketing and communications.

She left the company, but her upcoming senate race has meant frequent references to her corporate association.