Jeffrey Sprecher
Chair and Chief Executive Officer at Intercontinental Exchange
Thank you, Warren. Good morning, everyone, and thank you for joining us.
Today, we're here to discuss the financial results of the best quarter in ICE's history, along with our plan to continue our track record of growth with our agreement to acquire the public company, Black Knight. Black Knight is an important piece of financial market infrastructure that we believe will allow us to continue to reduce the cost of home borrowing, when coupled to the other US mortgage industry assets that we've built and acquired. This proposed acquisition is another step in a journey that ICE has embarked on since its founding.
As an early entrepreneur I studied the exchange space, and I discovered that the largest exchanges all had one asset class in common, interest rates. And what became abundantly clear during the financial crisis was that hedgers who thought they had effectively managed risk using legacy interest rate products, we're doing so very imperfectly. Couple that with the analog to digital conversion that's been happening in the markets more broadly, and we saw a powerful opportunity to redefine our Exchange business, and we've been diligently working on this thesis for more than 15 years.
To compete with hedging products, in the corporate borrowing area we acquired Creditex in 2008, married it with the Board of Trade Clearing Corporation in 2009, and launched a cleared credit default swap market that this quarter generated $72 million of revenue, and grew 33% year-over-year. We acquired the LIFFE Exchange in 2013, and revenue from its interest rate products grew 36% in the quarter. We acquired Interactive Data Corporation in 2015, and married it to the Bank of America Merrill Lynch Credit and Bond index business in 2017 to build tools and launch a powerful suite of corporate borrowing indices and reference data. We doubled the revenue growth in those businesses to an average annual rate of 6%.
In the consumer lending area, because the largest amounts of consumer borrowing are tied to home mortgages, we pursued opportunities in the US mortgage space, acquiring the Mortgage Electronic Registry service in 2018, Simplifile in 2019, and Ellie Mae in 2020. When coupled together, these technologies can offer lenders the potential to shorten the time that it holds interest rate risk market exposure from the time of the consumer Rate Lock until the time of wholesale funding, fundamentally changing the risk profile for lenders. And by leveraging our data expertise across the company, we recently created the ICE Rate Lock index and have announced that we're launching a futures contract on it in the coming weeks, creating an even more precise interest rate risk management tool.
Now, by adding Black Knight to our solution set, we have the potential to further improve the capital markets ecosystem that surrounds the funding of US home mortgages. Derisking these markets for participants by shortening the duration when interest rate risks are held, making data more transparent to the risk holders and creating more efficient hedging markets for those involved should ultimately lower the cost for the entire market. There is no question that our thesis of producing better interest rate products and tools has been proven out, as we've transformed the way risk is managed in the markets we serve. And our thesis continues to compound on growth as we innovate new interest rate hedging tools.
So let me now ask you to turn to Slide 6 of the ICE and Black Knight transaction deck. Yesterday afternoon, we announced that ICE has entered into a definitive agreement to acquire Black Knight for $85 per share or a market value of $13 billion. Consideration is expected to be in the form of a mix of 80% cash and 20% stock, and the transaction is expected to be accretive to adjusted earnings per share in the first full year following its completion. Warren will discuss the financials in more detail, but first, I'll discuss the strategic rationale of this very exciting transaction.
Black Knight as a premier provider of integrated mission-critical software solutions, and data and analytics that serve the US mortgage and real estate markets. Black Knight's suite of solution span across the mortgage workflow and are highly complementary to ICE's existing businesses. By expanding our solutions set beyond originations, we will be able to deliver a life of loan platform that reduces friction and drives transparency across the workflow. The integration of our solutions will strengthen the overall mortgage ecosystem, bringing more choice and delivering efficiencies for lenders, servicers, partners and ultimately the end consumer.
This combination will also expand the addressable market in our mortgage business to $14 billion, and better positions us to penetrate our existing $10 billion TAM. Black Knight will complement our all-weather business model with a high growth and highly recurring revenue base. And finally, we will leverage ICE's technology expertise to modernize Black Knight's technology stack, while tightly integrating our offerings to enable the many opportunities that are in front of us.
Turning to Slide 7. Much like the history and culture at ICE, Black Knight's mission focuses on customer service and product excellence. The expansive product suite and compelling value proposition Black Knight brings to its customer base has enabled consistent revenue and EBITDA growth, a trend that we believe will only continue as a part of ICE.
Moving now to Slide 8, you'll find a summary overview of our strategic rationale, which I'll discuss in more detail with the subsequent slides. Beginning now on Slide 9. The opportunity we see in the mortgage space is much like the opportunities that we're executing against other interest rate markets and asset classes, by integrating data and technology across the entire workflow to bring greater transparency and efficiencies to the broader ecosystem. A very manual loan origination process and its extensive regulatory oversight has driven the cost to originate a US home mortgage to nearly $9,000, with approximately one-fourth [Phonetic] of that amount being related to customer acquisition costs. As a result, more lenders are beginning to retain the servicing rights of the mortgages that they originate to recapture previous customers and reduce their acquisition costs.
By connecting Black Knight servicing system to the underwriting automation and consumer engagement solutions at ICE, we have an opportunity to create a life of loan platform that will enable lenders to realize a customer for life. This connection will lower the acquisition cost for lenders, enabling those savings to be passed on to the consumer.
Turning now to Slide 10. Data is a core competency at ICE. From our earliest days we recognize the value of leveraging data to drive transparency, and we continued to build on that expertise by broadening our datasets, connecting data across asset classes and innovating for our customers. The datasets that exist the cost, the complementary businesses of ICE and Black Knight presents an untapped opportunity to apply that same playbook within home mortgage. With access to solutions such as Black Knight's MLS listing services and real estate data, we'll have a presence in the home search process.
In addition, there is an opportunity to leverage Black Knight's tax data and property valuation analytics to further enhance the underwriting process and provide our customers additional insights into rapidly changing market dynamics. We'll also have the opportunity to expand our existing ICE Mortgage Technology solution set in the secondary markets, increasing the transparency for servicers and investors by enabling them to better understand their portfolio valuations, performance and risk. And by combining this rich data with ICE's expertise and fixed income and capital markets, we'll be able to provide even greater transparency to the fixed income markets through transaction-based data for more accurate pricing and prepayment modeling.
Turning now to Slide 11. As we We demonstrated in our other asset classes, the integration of data and technology across the mortgage workflow should enable greater automation, and in turn reduce friction to help lower the cost to originate our home mortgage for all parties, ultimately making a loan more affordable and accessible for the American homebuyer. By adding content to our consumer engagement solutions, we plan to provide consumers and investors greater clarity and insight into unique loan products and the key metrics that impact homeownership such as, interest rate levels in lending policies, ultimately improving the overall home buying experience for the consumer.
Lenders will also be able to proactively underwrite current customers for future home lending opportunities by helping consumers lower their housing payments, by refinancing out of additional interest rate overlays or reducing their risk adjustments to the original mortgage. And leveraging common datasets across the entire mortgage cycle could reduce data entry errors and erroneous fees that today impact consumers directly.
We also see an opportunity to develop innovative analytics, helping lenders connect with potential buyers in historically underserved markets, and identify minority bias in the home valuation process. These are just a few of the many examples of the many opportunities that we see to leverage our data and technology to support potential homeowners and make the dream of home ownership a reality.
Moving to Slide 12. The workflow efficiencies, this combination will deliver, underpin an expanded addressable market of $14 billion, including $2 billion from servicing solutions and an additional $2 billion within data and analytics. Our combined businesses will bolster our point of sale and consumer engagement solutions, enabling us to better serve that portion of our existing TAM. In order to provide you with additional transparency into this opportunity, we've separated this $2 billion addressable market from the application, processing and underwriting segment, which here is largely made up of our loan origination technology.
Black Knight also brings capabilities that will allow us to access part of our existing TAM, that we don't have a solution for today, such as their hedging and trading platform. These capabilities combined with our deep expertise in trading and clearing unlock a longer term opportunity to improve transparency for the secondary market participants in the form of a loan exchange. And finally, we'll be better positioned to monetize our current $10 billion TAM through opportunities to promote existing products across an expanded customer base.
Moving to Slide 13. Black Knight's highly recurring, more predictable revenues will complement ICE's existing revenue streams and increase our mix of high growth recurring revenues. Within ICE Mortgage Technology, our mix of recurring revenues will increase from roughly 50% to approximately 70%, and total ICE revenues will now be over 50% recurring on a pro forma basis. Importantly, these high growth recurring revenues are underpinned by mission critical data and technology that's embedded in our customers' workflows. And by adding more stable revenue streams to our current Mortgage Technology revenues we will improve the visibility and durability of our earnings and cash flow, further complementing our all-weather business model.
Let me now turn the call back over to Warren, and he'll discuss the financial details of today's transaction.
