Over the past 18 months we estimate that acquisitions within the mortgage services and technology sector exceeded three quarters of a billion dollars. This mix of transactions included both roll-ups of Appraisal Management Companies (AMCs) and diversification of services tied to real estate valuation. Notably, this pace of consolidation is slower than expected as the market may be experiencing a valuation gap between buyers and sellers.
Buyers are reacting to rising valuation multiples. They’re wary of both the choppy conditions of the origination and refinance markets and the uncertain impact of changing regulations. Sellers, who are mostly founder owned and operated, are capitalizing on the market’s rebound. Sellers are not compelled to accept buyers’ propositions as they hold on to the notion that they can reap the same reward in less time from the company’s free cash flows.
So, what does this mean? Our sense from talking with industry players is that once the current economic cycle turns negative, the demographics will favor the acquirers.
Transactions to highlight:
CoreLogic’s $475mn acquisition of FNC set the high bar on transaction multiples at an estimated 13.5 times EBITDA and suggests the value of deeply embedded workflow systems for collateral management to larger lenders.
First American’s estimated $20mn acquisition of Forsythe Appraisals (terms weren’t disclosed; however, SEC filings provided some insight). Forsythe Appraisals, founded in the 1940’s (yes, 70+ years ago), seems to have a solid cultural fit with First American’s existing AMC business.
LRES’ acquisition of InsideValuation is a notable transaction for the smaller AMC shops looking for inspiration. The combination mergers a well-established residential AMC business with a commercial appraisal shop.
As for what's next, we would not expect much activity from the larger players who are focused on absorbing recent transactions (e.g. Black Knight/eLynx). However, we would expect more activity down market as medium-sized players look for greater market share and innovation through expanded service offerings. The graphic below highlights our take on a few potential initiators.
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