(Mortgage M&A Trends) Bill Neville of LoanLogics: Why Our Acquisition Worked—and What Lies Ahead for M&A
Bill Neville, CEO of LoanLogics, Jacksonville, FL., is responsible for overseeing all company operations, technology and software development, and leading strategies that continue LoanLogics’ rapid growth as a technology provider improving the quality of mortgage lending. Neville has more than 25 years’ financial services experience, including in Executive and Board Director positions.
(This is part three of a four-part series, “Mortgage M&A Trends,” discussing recent and upcoming mortgage merger environment. The stories were written by four executives, three of whom have been through a recent M&A transaction: CIVIC Financial Services President William Tessar, Evolve Mortgage Service CEO Paul Anselmo, LoanLogics CEO Bill Neville, and STRATMOR Group Senior Partner Garth Graham.)
It’s no big secret that there has been an increasing number of mergers and acquisitions in the mortgage technology space over the past couple of years, and it should be no surprise why. The mortgage process remains costly, slow, deeply rooted in manual processes and much of it still involves paper documents instead of digital data.
The COVID-19 pandemic in 2020 and huge demand for refinance and purchase mortgages brought to light capacity issues, significant slowdowns in processes still being accomplished by people and the need for virtual tools. As a result, we experienced a dramatically accelerated market demand for digital technologies to provide scale and automation. Creating these digital technologies has increased the need for investment in a material way and buying digital technologies has increased M&A activity in the same manner.
With the goal of continuing to grow our company through upgrades and additions to our technology-based (AI/machine learning) product portfolio, we began to consider how M&A could bring this about sooner. That desire led us to Sun Capital Partners, a growth focused private equity firm with an enviable, process driven track record. Sun Capital was focused on expanding their technology portfolio and we were focused on new ownership who would provide resources and capital to accelerate our growth organically and inorganically. Today we are fully integrated into Sun Capital and are reaping the benefits of their capital, their operational expertise and their team to better serve the rapidly modernizing mortgage technology market. Additionally, we have recently completed our first acquisition with the purchase of LoanBeam, the market leader in digital, automated Monthly Qualified Income for Mortgage Underwriting.
The M&A journey that brought us together was not unique, overly surprising or stressful. But, as always, it was very exciting with both ups and downs. Having “been down this road” many times before, I would say that once we engaged with Sun Capital, we knew we had found our new partner.
A Full Dance Card
Back in 2020, when the industry was in the depths of the pandemic and the demand for digital technologies began to soar, we started receiving interest and offers from companies that wanted to buy LoanLogics. We hired an investment banking firm to advise us on how to engage with interested parties and what kind of data we needed to put together. After we assembled that information, we talked with many firms over several months until we were ready to engage exclusively.
Incredibly, we had almost 90 different companies express interest in LoanLogics. However, there’s definitely a “dance” involved when you’re looking at potential acquirers, and in our case, we found many danced to a different tune.
We also had to consider the pros and cons of being acquired by a strategic operating company versus a private equity firm. One benefit of being acquired by a private equity growth firm is that they don’t expect you to change what is working, but instead provide an infusion of capital for innovation and operational excellence. Conversely, strategic operating companies have their own established culture that we would have to “fit into,” and they focus on synergies, both revenue and expense.
An old friend of mine who ran M&A for a company we used to be with often said “you have to kiss a lot of frogs before you find the prince.” In fact, the majority of companies interested in buying us were not a great fit. Two reasons for this were our desire to protect our carefully built team and culture, and our requirement that our clients only experience continued improvement and do not see any interruption from the process.
We’re proud of our people and the environment we’ve created at LoanLogics, where we all share a deep, organization-wide passion for innovation. We have a responsibility to our employees to keep it that way; therefore, we would never have been interested in a sale that would not support our strategic direction and passion for our people and clients.
Finding the Perfect Fit
One of the high points during the process of assessing potential private equity firms was how much we learned about ourselves. I don’t think you ever truly know your own company until you go through a process like this. We were assembling data and going through the due diligence process, answering every possible question you can imagine. It was like a full body scan done repeatedly with each interested party. We learned so much more about LoanLogics—and it was great to get the feedback and affirmation that the work we’ve been doing has real value.
When Sun Capital reached out to us quite late in the process, we immediately took interest. They had a very strong leadership team and have invested in more than 425 companies. They were also highly focused on technology. They understood how technology is transforming the mortgage industry and how they could accelerate our growth and our role in the transformation.
Once we met with the founders and partners, we realized they bought into where we planned to take the company. We knew they weren’t going to take us in a different direction and that they wanted and needed all our people. In fact, all of our employees stayed with us, which is somewhat rare following an acquisition. Here we are seven months later, and we’re finding Sun Capital to be exactly who we thought they were—the perfect partner.
What Lies Ahead
Now that we’re on the other side of the deal, we have the option to look at potential acquisitions ourselves—and there are many opportunities out there. The housing market remains strong and growth in the purchase market, which is more complex than refinance originations, will continue to have a significant impact on the demand for digital processes that the pandemic initially accelerated.
The LoanBeam products we acquired last December are an excellent example of the digital transformation happening within the mortgage industry. Through the acquisition, we’ve been able to expand our portfolio of origination tools to include automated income calculation, which further improves loan quality and creates greater efficiencies in the production of mortgage loans.
I fully expect to see high, ongoing M&A activity in our space. Every week, it seems we’re hearing about a new deal, or an IPO, or a company announcing a capital investment. Capital is inexpensive right now and there’s a lot of it out there. In fact, we’re still getting calls from companies interested in buying LoanLogics.
The reality is that it still costs way too much money to originate a mortgage, and the vast majority of loans are still being underwritten multiple times to reverify quality. There’s a lot across the mortgage value chain that needs to be changed and improved through modern technology.
As for the housing market, we’re modeling a drop in volume in 2022. But if inflation isn’t extreme, interest rates stay low and housing inventory improves, I think we’re looking at another strong year above pre-pandemic levels. The most important challenge remains making the work involved more efficient.
At the end of the day, we couldn’t be happier about how our acquisition by Sun Capital Partners turned out. We are culturally aligned, we’ve met the fiduciary responsibility to our former shareholders, and our employees and clients are happy. Our goal has always been the same—to develop technology automation for mortgage document processing and data-driven audit software that improves efficiency, enhances transparency, streamlines commerce, and reduces risk. With the benefit of Sun Capital’s resources and growth expertise, we will continue to ensure quality performance for our clients, enhance our operations and find better ways to serve the mortgage industry.
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