Ellie Mae: From Take-Private to $11B Exit

AIR DATE:

February 26, 2026

LENGTH:

44:40 minutes

ORLANDO BRAVO:

Welcome to Thoma Bravo's Behind the Deal. I'm Orlando Bravo, founder and managing partner here at Thoma Bravo. Today's episode is a special one. We're looking back at one of Thoma Bravo's most successful deals, the take-private and eventual sale of Ellie Mae, a leading US mortgage loan origination software company. In this episode, Managing Partner Holden Spaht and Partner Brian Jaffee take us back to 2019 when they saw an incredible opportunity amid the volatility in the mortgage cycle. They led a 3.7 billion take-private and executed an operational playbook focused on tightening operations and optimizing pricing, driving revenue growth north of 20% and expanding EBITDA margins to over 50%. Just over a year later, Thoma Bravo sold Ellie Mae to Intercontinental Exchange for approximately 11 billion, a significant outcome for the firm.

There are no CEOs on today's episode, just Thoma Bravo deal makers going deep on how we do the work. Here's the conversation.

HOLDEN SPAHT:

Well, Brian, good to see you. Nice to be here. Today, we get to talk about a transaction that you and I worked on that we haven't been able to talk about in years. I'm really excited we get to talk about it again because it's one of the best transactions in Thoma Bravo's history. That is Ellie Mae, the take-private of Ellie Mae and the subsequent sale of Ellie Mae to Intercontinental Exchange, which was just a very fun deal to work on. I'm excited to talk to you about it. Maybe for the audience, maybe set it up. How did it come together? Maybe just give a little bit of the background of the transaction.

BRIAN JAFFEE:

Yeah, happy to, always a fun one to get to talk about. It's such a great example of a Thoma Bravo deal. I always like to start with the way we're organized and structured and how we think about the markets because I think that was really relevant here. This was a company that we had tracked for a really long time as part of our broader financial technology coverage, that's an area that you and I have been leading now together for almost 12 years, and this was just a perfect company in that space.

Ellie Mae back then was by far and away the leader in LOS software, which stands for loan origination, specifically for the mortgage market in the United States. It was a company that actually was founded right in our backyard in Pleasanton, and that happened in 1997. The company went public in 2010, 2011. So we tracked it as part of that coverage, really got to know the company and the space, but it was always kind of a high flyer. It traded at really high multiples, and so it was kind of on our wish list of companies we always hoped maybe one day we could buy, but seemed kind of unattainable.

And then really kind of leading up to when the deal happened in 2019, the stock really took a big hit. This was an interesting one because it was so tied to the mortgage market, and public investors really I think kind of viewed it as a way to play the mortgage market. Because at that time, if you go back and look at 2016, '17, '18, the Fed had started raising interest rates. I think everybody probably knows that mortgage volumes tend to be very sensitive to interest rates, so people felt like, as interest rates were going up, that was going to have a negative impact on Ellie Mae and their business. So the stock traded way off, and that really created an opportunity for us to come in and really start to do some work and take a real look. That's how it all kind of came to be.

HOLDEN SPAHT:

Yeah, I remember that well. Typically, in our industry, in the SaaS industry, when you see a company decelerate quickly... This company went from a 20%-plus grower to kind of a 10% grower roughly almost overnight. Typically, when that happens, if a company decelerates as fast, either their bookings are falling off a cliff or the renewal rates are coming way down or retention rates, so the business fundamentals are generally deteriorating. I remember that, and I think what, at the time, the market may have misunderstood or missed is that there was a lot of beta in the company's pricing model.

They had an unusual pricing model for a SaaS company, which was they had a seat-based kind of floor. A number of seats using the software times a price per seat, the customer would pay the greater of that, or a price per loan times the number of loans they're originating. They did have some beta and it was complicated and it was tied to the mortgage market. So when refinancing slowed down in the middle of '18 and the company decelerated, normally the market's reaction wouldn't seem so irrational when the stock went from 120 into the 60s. But here, because we'd followed the company closely, we did think, "Okay, the market's probably misunderstanding that the business fundamentals are still very good." That's what created this opportunity that our team plus a couple of other of our peers saw in the business.

BRIAN JAFFEE:

Yeah, that's all exactly right. Really, in the fall of 2018, because of that stock price drop, the board made the decision to let a really limited number of parties actually sign an NDA and do some real work. We were one of those parties, again, given that we had been around the company and had a track record of buying companies exactly like this. That was kind of the first moment where we really got to get underneath the company and started meeting with the CEO, Jonathan Corr, to really talk about a business plan, get underneath the company in a lot more detail, and that's kind of when things really started to get serious.

HOLDEN SPAHT:

Yeah, as you said, we had been trying to get in front of the company for a long time even though it was very pricey, but this was the first time we were successful, which was generally a good sign. You said, "Okay. Maybe they're thinking about this potential, a take-private as a real alternative." You and I went and had dinner with Jonathan. One of the things that was as... A typical Thoma Bravo deal was just, given the size of the company and given its market position and the strength of its product and its customer retention rates, a lot of things you could discern from the outside, we felt like the company's cash flow margins should be significantly higher than they were. We were running companies at the time in our applications portfolio, roughly 40%, and this company, when you deduct capitalized costs, was at roughly 14%. They had some structural things that should have made it probably even one of the highest companies in our portfolio.

We had this dinner. I think we even brought some slides to show like, "Hey, this is our average portfolio. This is you. To pay the kind of price that's going to work for your shareholders, we're going to need to underwrite some significant margin improvement." I probably said it a little more directly. As I've gotten older, I've gotten a little more direct. We basically asked for a very significant cost reduction, roughly $100 million, so a little bit over 20%, and I could tell that didn't really take which... Look, this guy is a really, really sharp guy, Jonathan. He'd been around the business for a long time, 17, 18 years, real domain expert. I probably could have nuanced the message a little better, and there were some reasons why maybe that was a little aggressive, but that was the start of a conversation. We like to be very transparent, and we kind of told him too, "Other private equity firms may not be telling you this, but anybody who's going to pay several billion dollars for this company is going to want to see some margin improvement."

BRIAN JAFFEE:

Yeah, I remember that dinner vividly and his reaction. Now that we think back on it... And you're right, Jonathan had been at the company for almost 20 years. I think he was actually credited with inventing Encompass, which was the flagship LOS platform, so he was almost like the founder of the business. When we came in and told him, "Hey, we think there's $100 million cost opportunity, and you're not running the business maybe the way it could be run." His first reaction wasn't super positive, but we worked on him.

HOLDEN SPAHT:

We even had to bring in Orlando a little bit because I said, "I might've come in a little hot here." We did learn through the course of our meeting that there was a big regulatory moment in 2019 that they had to prepare the product for. There was a lot of product investment that needed to happen. Until it happened, they couldn't really change the size of the development organization significantly. We started to think about it maybe in two stages, that maybe there was a cost reduction that could happen right after closing. And then once they achieved this big product milestone about a year after our investment, there could be another significant reduction. Orlando did what he did, which is sell that to Jonathan, and that worked extremely well, extremely well.

But I also remember the things that attracted us to the investment work. We felt like the mortgage market, you never know if it's at a trough or not, but it didn't feel like it could go down that much further. If you're going to buy a company like this, you want to buy it after a dip in the market. We felt like, given they had some beta in their pricing model, we would be beneficiaries of that if the market even was stable or if it grew, but it wasn't going to come down that much further.

The other thing that we discovered was just that they also hadn't really been priced customers effectively. Pricing and packaging was a huge opportunity because they were signing up a lot of five-year deals. They had some customers with the exact same software paying $100 per loan, and they had that customers using the exact same software with the exact same features paying $75 a loan. Given the market position of the company and how good the product was, that didn't make a lot of sense to us, so we knew we could raise prices and that would give us cash flow to make acquisitions. Between the pricing opportunity, the cost opportunity, the M&A opportunity, the fact that we were backing somebody who'd been in the industry for a long time, it all made a lot of sense. It was a straightforward investment thesis to understand.

But all that said, another competitor of ours ended up getting the deal under exclusivity at a price above which we were willing to pay. For a while, we just were idle, which was disappointing. There were only, I think, three of us really, three private equity firms who were really pursuing this opportunity aggressively. We were now getting into the early 2019. And then we got a call from the banker basically saying that the party who had the deal under exclusivity was getting weak and wanted to re-trade the deal at a different price, and I think we know some reasons why, but that's what brought us back to the table.

BRIAN JAFFEE:

Actually, I went back and read the proxy just for fun. It was super interesting to go back and see how that all played out again because the first bidding round, where they asked all three of us to put in a proposal, we were all right on top of each other. Everybody kind of centered around $90 a share.

HOLDEN SPAHT:

Right.

BRIAN JAFFEE:

Then a week later, they kind of told everybody, "Hey, we're looking for triple digits. We want something at least $100."

HOLDEN SPAHT:

Right, I remember that being very discouraging.

BRIAN JAFFEE:

Which was really discouraging. This party that you mentioned went back to the board and said, "We can get to $100," and that's when they were granted the exclusivity. I think they had that for a week or maybe 10 days. And then we got the phone call that you mentioned and it felt like, "Okay, this is back on. Maybe we don't have to get quite to $100, but there's probably a deal here somewhere above where we had bid." We went back to the drawing board. I think you and I have been in this situation many times over the years where you realize, "Okay, we've got this opportunity to potentially own an amazing vertical software franchise in a space that we know really well. Let's go look at all of our work again, and let's really go through it with a fine-tooth comb. Let's make sure we're not missing anything. Let's make sure that we're not being too conservative in any of our assumptions. And if we want to own this thing, let's figure out how we're going to own it."

Another vivid memory that I have was basically it all kind of came down to this final weekend where they were going to ask everybody to essentially kind of put their best and final proposal forward. You said, "Hey, why don't we just get the team to come over to my house?" It was like a Saturday morning.

HOLDEN SPAHT:

Yeah, my wife loved that.

BRIAN JAFFEE:

Claire loved that. We all come over. It's probably like 9:00 in the morning. We get over there. A lot of us hadn't slept very much. We're completely rethinking the model, going back through all of our diligence, and we spent probably an hour, an hour and a half, walking you through kind of where everything was, some areas where we felt like there might be some opportunity. I would say kudos to the deal team because we really went super deep on this model. As you mentioned before, this was a complicated company, a complicated revenue model, so you really had to understand the inner workings almost on a customer-by-customer basis, when they had 3,000 customers, to have a sense for what was that pricing opportunity, what would happen if you sensitize mortgage volumes in this way or that way.

There was another component to it, which was there was Ellie Mae network, which was just an amazing part of this business. It was like 10% of the revenue, but probably a lot of the profit, and this was essentially a network that they had created around the LOS where they would let third-party service providers to the mortgage process connect in and actually pay the company for the opportunity to get access to all of the mortgage originators on the platform. We also realized like, "Wow, I think we're looking at the margins the wrong way because that's pure profit."

HOLDEN SPAHT:

Yeah, when you strip that out. That was about 60 million roughly of revenue at the time at 100% margin. We also said, "Gosh, when you take that out, they're basically not making any money with the core software business versus our 40% kind of benchmark."

BRIAN JAFFEE:

That's exactly right. We had so much conviction in the cost plan, so much conviction in the quality of the revenue and the business that we had done from our diligence. After we got through that session with you at your house, I think we had a lot of conviction in our underwriting, the model, and the fact that we wanted to own this company. I'll never forget, we go through that meeting with you, we walk out of your house-

HOLDEN SPAHT:

By the way, before you get to this part... Because on that meeting, I do remember, I have to say, just like you said, we had two young guys, Dylan Despot and Will Downing. We knew we had a very short window to figure this out. Once we got the call from the banker and somebody... They were still around it, but they were ahead of us on work, but they lowered their price. We needed to get to more price. We just needed more analytics. I know people aren't sleeping much, but I was so impressed by the work. Just like you said, to understand where the customer was in its subscription floor versus its kind of transaction overage was critical to underwriting the deals. You had to look at it customer by customer.

And there were also some customers who were still ramping, so they bought the software, but it takes a while to get all their volumes up and running on the software. The customers were paying very little, but then they had this ramping where they grow a lot in the first 12 to 18 months. Our team did an incredible job, and it's very different than our normal kind of enterprise software SaaS kind of underwrite model, and these guys were gaining three to four points of market share every year. We thought that would continue. We just got so comfortable that even if mortgage volumes were to decline 1 to 2% a year or 3%, whatever, we assume that this company's revenue quality with 98% customer retention on its core product would allow it to still grow 10% a year. So the business fundamentals were amazing.

I remember also, and I'll let you finish the story, but coming... When I got up from the kitchen table, I was like, "This is..." I was so proud of the team and I was so excited about our run, I said, "We have to win this deal."

BRIAN JAFFEE:

Yeah. Yeah, that's well said. I'll give a shout out to Jamie Hutter who was the other member of the team.

HOLDEN SPAHT:

Jamie.

BRIAN JAFFEE:

We can't forget about Jamie.

HOLDEN SPAHT:

God, sorry, Jamie.

BRIAN JAFFEE:

The team did an amazing job. It was a great discussion at your house. I remember coming out of that. We stand up from your kitchen table, we're all fired up like, "We're going to win this thing," and we walk out your front door. It just so happens that your neighbor at the time happened to be a partner at one of the competitive firms in the process, and he was out in his driveway, playing with his kids or doing something, and he looks over and he sees three or four people with their briefcases and backpacks streaming out of your house into a black SUV that was heading back to our office, because we had a bunch of work that we had to finish for our investment committee discussion on that Monday. He must've known at the time like, "Oh, boy, we're in trouble."

HOLDEN SPAHT:

It wasn't the typical Saturday morning at my house. I was usually at the park with the kids. It's funny you say that because a similar thing had happened. It was really awkward in a way to have a senior partner at our rival private equity firm as literally my next door neighbor. No house has separated us. The exact same thing happened to me with him a few years before that where we were both working on a deal. It was a last... It was the best and final offer on a Saturday, and I saw his car with a couple people going towards downtown, and I remember thinking, "Oh, man, we're going to lose." But this time, we had the better-

BRIAN JAFFEE:

We did.

HOLDEN SPAHT:

He told me after the fact, when he sees it, like, "Oh god, when I saw all your guys rolling around on Saturday morning, I knew we were in trouble." That brings us to we bid. Actually, they did receive... We did three bids. Ours was differentiated. I think we won on the strength of our business plan. It allowed us to get more leverage because we showed more cash flow to lenders because we had a really good cost plan with management. I think we also... the strength, as I was saying, of our underwrite and the revenue model and understanding the relationship between mortgage volumes and the customers that they had and the growth and the success-based pricing, so we had a really, really, really good underwrite. We also thought there'd be acquisitions to make. It's a very fragmented space. Just like you were talking about the network business, they had all these other solutions that plugged into their network and we thought some of those should actually be acquisitions for the company. We were successful in signing the deal. It did have a go shop, by the way.

BRIAN JAFFEE:

That's right.

HOLDEN SPAHT:

I think one of their large strategic competitors whom they hadn't shown the deal to, because they were worried about the Justice Department and antitrust, actually called and was starting to threaten us that, "If you don't let us into our deal, we have a ton of synergies. We're going to just beat you, guys." We're used to those threats, too, so... We didn't do it, but we were successful. We had a great business plan, a great underwrite, and it was an incredible... We felt great about it. We did lean in. At the time, people were saying, "You guys, that's..." In hindsight now, you go, "Well, that wasn't that big." It was a big price-

BRIAN JAFFEE:

Yeah, seven times revenue.

HOLDEN SPAHT:

... at the time. Seven times revenue for a company that did not make hardly any profit actually before our pro forma. We went in aggressive. We thought, "This is something we have to add."

BRIAN JAFFEE:

Yep. Deal closes in April of 2019, and we were off to the races. We had a lot of work to do actually. Like you mentioned at the beginning, we had 50 million of costs that we had to get out of the business almost immediately, which we did. We worked with Jonathan to completely restructure the organizational design of the company, of the senior team in particular. We completely rebooted the go-to-market motion to be focused on. At that point in time, they had north of 50% market share of all mortgage origination volume happening in the US. We really wanted them focused on not just continuing to take that market share, but also cross-selling these other incremental products they had back into that customer base. You mentioned the pricing and packaging. That was a huge work stream that we kicked off with them. All of that operational work was going on, and you probably remember the early-

HOLDEN SPAHT:

Most companies we buy too, it's important to say that the data that we start with is generally inadequate, to be generous. When you're starting to do this, talk about pricing and packaging, and you got to go through 3,000 customers, see when their contracts are up, see what they're paying price per loan, it's a lot of detailed data and work. Most companies that we start with, there's a massive data cleansing exercise that we generally have to do, and we had to do in this case.

BRIAN JAFFEE:

One of the things we had to do also right out of the gates, we basically transformed their entire order-to-cash process, so all the systems that they had. I don't know if they had touched them for 10 or 15 years. The CRM that they had was completely broken and needed to be re-implemented. We went through that entire process and, as part of that, we had to tease out all of the data that we needed and that the company needed to be able to run the business. Again, going back to how complicated this revenue model was and really being able to understand what was happening down to a customer level, I would say, at the time, I'm not really sure anybody at the company or their finance organization had a really good handle on it. There's just a ton of work that really started to go into the investment right out of the gates.

The nice thing about what we do when we take cost out like this is we create balance sheet capacity to go do M&A. That was another huge work stream that we kicked off almost immediately. It just so happened that this was a really fragmented space. We knew that that Ellie really should be the consolidator or acquirer of choice in this market, and so we had spent a bunch of time during our diligence kind of mapping the space out. We had some priority targets that we wanted to go after immediately, and, in fact, one of them just so happened to be for sale pretty shortly after we closed our take-private. We jump into that situation.

One of our partners in our Discover Fund had also been spending a lot of time in this market. We knew this company, we knew the founder, we knew it was a perfect fit for Ellie Mae. In fact, I remember we flew out to... I think it was Palm Springs. I dragged you out to a meeting to meet with this guy, the founder of this business called Simplifile. I want to try to convince him to sell it to us. They ultimately ended up running a process. Usually, even in that situation where it's a competitive process, we feel pretty good about our chances. We're aggressive. We have a strategic asset. We can take cost out. We know how to run these things.

I'll never forget this, it was probably June of 2019. I was actually in Columbus for my brother's wedding when we got the news that we lost the deal to another strategic buyer, and I had to make the phone call to you to tell you that, "This deal we had been working on for months that we thought was so strategic to our platform investment, that we had just shelled out a couple billion dollars to acquire, had gone in a different direction." That was not a fun phone call to make, but I'll let you take it from there in terms of why that may have been a huge blessing in disguise.

HOLDEN SPAHT:

Yeah. Well, I'm sure I blamed you, and so I apologize because it was unusual. We're generally pretty good at getting add-on M&A done. In fact, you did get one highly strategic acquisition of a company called Capsilon done. The one that you're talking about that we lost, I also credit you for saying, "Hey, but..." First, I said, "Who..." Then it became public who did it. It was Intercontinental Exchange, the guys who owned the New York Stock Exchange. I said, "What? That's odd," or I didn't quite understand it at the time. Now, they did have a mortgage asset-

BRIAN JAFFEE:

Yeah, MERS.

HOLDEN SPAHT:

... before this, MERS, but you had the great idea of, "Hey, why don't we get in touch with those guys and see what their ambitions are in mortgage or... Let's just see what..." It took us a little bit, but I think it was early 2020. At this point, obviously, here we are, economy is slowing down, COVID happens, interest rates go to zero, mortgage market is on fire. It's ripping. It's like double what we had forecasted, and so the numbers for our company were... The pricing had worked. Capsilon was a great acquisition of the company, so that was performing great.

Everything, the cost plan, had come together, and so margins were going up naturally, but then you had this overlay of a mortgage market that we thought would be a couple trillion dollars was headed towards $4 trillion. It was hard to keep our team. I remember just trying to be like, "Let's keep focusing on what we can control," because you almost get too excited. You go in these meetings, you're like, "We have so much cash flow," everybody... There's the originations. But we reached out to Intercontinental Exchange to understand, and I think they really have this big play to digitize asset classes really. Anybody who's ever borrowed or had a mortgage understands how cumbersome that process is, all the signatures, the notaries, and so they have this huge thing. It was a huge vision, but over time that should all be automated and digitized.

Because Ellie Mae's system is, as Jonathan Corr used to say, the heart and lungs, it has all the data. It and, really, Black Knight have the data on all these things. If that's your vision, you have to own one of those two companies. It was pretty obvious when we started those calls with Ben Jackson first, who was president of Intercontinental Exchange, that we started to understand their vision and we said, "Man, you guys should really buy Ellie Mae." I think they had looked at it, but for some reason it wasn't the right timing for them. But we started talking to them really in the spring, I remember, of 2020.

BRIAN JAFFEE:

That's right.

HOLDEN SPAHT:

Is that right?

BRIAN JAFFEE:

That's right.

HOLDEN SPAHT:

Yeah. It was obvious that they really wanted to do the deal. There was a real industrial logic for them to look at our company, and I think the question was, "How can we look at a company that you just acquired a year ago? Clearly, there hasn't been enough equity value creation to pay a price that's going to work for our shareholders."

BRIAN JAFFEE:

Yeah, that's exactly right. I remember that first discussion with him. We started walking through the numbers and, like you pointed out, when the pandemic hit, there was a moment there where we were saying to ourselves, "Gosh, we own this thing that's tied to mortgage origination volumes and banks in the US, and now we're in lockdown in a pandemic. What's going to happen to the financial system? And how are people going to buy and sell homes?" It turned out that everybody figured all that out, and actually, with rates going to zero, it totally supercharged the market. Like you said, our numbers just kept going up and into the right and beating every forecast that the company had put out. I walked Ben through all the numbers and what we had been doing almost for the last year, and I think he was kind of blown away at the transformation that the company had gone through in such a short period of time, in particular, how much profitability it had. I think that was actually really important for ICE because they run at probably 60% EBITDA margins. It's an incredible business that they have.

The fact that because the volumes and the market was in such a good place, our revenue was growing really nicely and, call it, north of 20%. At the time, we were now north of 50% EBITDA margin. I think at that point too, they were maybe a year prior, just starting to really think about, "Okay. We've got this MERS asset. It's kind of this esoteric thing in the servicing part of the mortgage ecosystem." We've identified mortgage as an area that seems like it's ripe for digitization, to your point, so what are the pieces that we need to put together? Simplifile, actually, even though it was a great acquisition and a great company, it was small. I think it was a $350 million deal, but they bought that. And then they were clearly starting to think about, "Okay. If we're going to really do this, what's the next step that we want to take to jump fully into this market?" Like you said, there were really two assets at the time, and, frankly, Ellie Mae was the better-

HOLDEN SPAHT:

The best one.

BRIAN JAFFEE:

... by far and away of the two.

HOLDEN SPAHT:

Yeah. Like you said, I remember we kind of floated the high levels. We're kind of growing 30% now at 50% margin. They had probably looked at the 10K from the year before and seeing a company with low double digits margins growing like 10%. I remember the call ended. And then he called me a week later. He clearly had gone and talked to Jeff Sprecher, chair and CEO, and kind of said it. I think Jeff was probably like, "What? How could those be?" Look, we did a lot of great things. We didn't anticipate the mortgage market doing what it was doing, so we also got a little bit lucky. I remember Ben calling back and saying, "Can you just walk... Tell the numbers again," and so then I actually gave them the dollar figures. I think they started to think, "Maybe there is a transaction that we could do, and it could work for our shareholders and work for you guys," because we were looking now, staring at 2020, north of probably 400, 400-ish of EBITDA and looking for another 20% growth plus year in 2021. We were actually also pretty bullish on our company.

So we started this dance slowly, and then he said, "Why don't we have a meeting?" Of course, at the time, now we're in June of 2020 roughly.

BRIAN JAFFEE:

That's right.

HOLDEN SPAHT:

Okay.

BRIAN JAFFEE:

That's right.

HOLDEN SPAHT:

Okay, because I remember I felt like I was a caged animal. I was dying for a business meeting. I had been... Love my family, but I hadn't been doing nothing for three months other than remote work. It's a real face-to-face meeting. Jeff has a plane. He's like, "I'll fly to the company's headquarters in Pleasanton," and I remember being so excited to have a meeting. It was almost strange. That's where, and I'll let you... You put together, you and the team, an incredible set of materials.

BRIAN JAFFEE:

We get this meeting set up for, I think, the end of June in 2020. We know they're going to fly out. It's going to be Jeff Sprecher, who's the CEO of the company, and Ben Jackson.

HOLDEN SPAHT:

Amazing guy, by the way.

BRIAN JAFFEE:

Great guy, basically built that company.

HOLDEN SPAHT:

Yeah, very commercial, sure.

BRIAN JAFFEE:

Super commercial. We saw in terms of how they operated with Simplifile, they're very aggressive. They know how to do M&A. So we're prepping for this meeting and we decide, collectively, "We know they've got a four-hour flight. It's going to be the two of them on a plane flying out for this meeting. Let's just put together just an awesome set of materials that... We know the two of them, they're going to be talking about this deal and this meeting the entire way. Let's send it to them right before, maybe the night before or the morning they're going to get on the plane. That way, all they can do is just talk about the materials and look at them on the way." It's exactly what they did. The next day, they land. We're already at the company waiting for them. They walk in, and maybe I'll let you take them there.

HOLDEN SPAHT:

Because they are a funny... You can see why they're so successful as a pair. Ben, he's very buttoned up. He's very straightforward, which I like. He's very transparent, but he's not emotive, certainly. He doesn't show. He has a really good poker face. After the fact, we had learned that he had told Jeff Sprecher before you walked into this meeting like, "Hey, let's just..." I think they were really excited about what they saw in those materials. He said, "Don't overplay when we walk in. Let's be calm and just walk through the story and talk to the management team," and they walked into the conference room, we shook hands. I remember he just said, "We need to figure out how to do this deal. This is amazing," and we were like, "Well, that is a great start to this meeting."

We had probably had a two-hour meeting, and they were in it. We're like that too. When we want something, you can tell by the way the Q&A is going whether they really want to buy it or whether they're just sort of dabbling or they're still thinking about it. They wanted to understand the company at a very granular level, and so that meeting was the start, really.

BRIAN JAFFEE:

That's right. That's right. Yeah, I remember we walked through every single page of that deck. They asked 100 questions, they got into all the detail. I also remember... So we had this great meeting, Jonathan was in the meeting from the company, and Joe Tyrrell, our COO at the time. We had our two top guys from the company, you and I were there, walk them through the whole thing. And then as we were kind of walking them out to the door, as they were leaving, I think it was Jeff, turned around, and he looked at you and he just kind shook his head and he said, "You guys are going to make a lot of money on this deal." That was the last thing they said, and then they left.

HOLDEN SPAHT:

Thank you. Thank you very much. No, he did acknowledge that he missed the pricing opportunity. He did say that, he was like, "I didn't..." The pricing power did get him very... He likes that, right? Who doesn't, I guess. That's generally been a part of his investment theses and some of his M&A. He saw that, he saw the market share gains, he saw the margins, and... I think he even said they do two types of deals. They do kind of they'll buy some cheaper revenue things and do fixer-uppers, or they do the ones that are kind of humming and high margin and all that. They don't tend to do things in between. This fit in one of those categories.

I remember it was shortly after that that Ben called me. It was probably a couple weeks, a week or two, and he kind of floated. We kind of had this also kind of... not awkward, but it's kind of awkward getting started. We're not talking to anybody, we're not shopping the company, but we knew they were super interested. I remember him saying like, "What about value?" And I'm like, "Well..." I think I'd given him some parameters around multiples for high-quality enterprise software companies of cash flow and things like that. He knew that stuff too. I remember he kind of said, "I think we could probably do 8 to 9 billion," and I immediately was like, "That's not going to work," but it was the start of a conversation.

And then we went back and we were also... The numbers kept changing. It was hard to put a pin on. I remember being like, "Brian, tell me what our EBITDA..." The market kept getting better and better. By the way, one thing I definitely learned is that these industry forecasts are six to nine months behind. You cannot rely on them. Frankly, we could forecast better because we had mortgage applications that were visible on our system, so we had a better idea of where the mortgage market was going than these, but we would use these to do our budgets. We would use like the MBA, whatever the forecasting consulting firms are that cover this market. But they were so delayed that every time we would put together a forecast and send it to those guys, three weeks later, we'd be like, "Well, it's going to be much better than that."

BRIAN JAFFEE:

Yeah, that's right. I went back and looked. We originally showed them about 400 of EBITDA, then the market continued to get better and change, and we showed them 480 of EBITDA.

HOLDEN SPAHT:

For 2020?

BRIAN JAFFEE:

For 2020.

HOLDEN SPAHT:

Oh, my god.

BRIAN JAFFEE:

And then the market continued to get better and change. We finally went back and said, "Okay, let's throw all these industry forecasts in the trash, and let's look at the data we have," because we were over 50% of the market, "and let's try to come up with a forecast that's rooted in reality and data." and so we came up with a new forecast of 550 of EBITDA. So we went from 406 to 480 to... At that point, we had just lost all credibility, but it just goes to show you how rapidly the market was moving. And amazingly, for '21, if you actually look at... that resulted in about a $4 trillion mortgage market in that year, and it was another 4 trillion market the following year.

HOLDEN SPAHT:

In 2021, yeah. We knew there'd be a good run even after we sold, and we had the Black Knight data to show how many people still should have refinanced that hadn't refinanced. We had pretty good data to suggest-

BRIAN JAFFEE:

We could see the backlog.

HOLDEN SPAHT:

We could see the backlog, so we knew it was going to continue to get better, so we were just doing the best we could. We did settle. We went under exclusivity with them at $10 billion, which we were like, "Wow, that's a big number," but the numbers kept getting better. I remember started... At some point, I had regret, strangely, about trying to sell the company for 10 billion after we had just bought it for 3.7 billion a year before, but the numbers just suggested we weren't optimizing our outcome. Maybe it's worth 12 billion.

I remember I was with... Claire and I, we were vacationing for a week in Nantucket, and I couldn't get it out of my mind, and so I called you, I called Orlando, and I said, "Hey, do you mind if we go back and tell them we're not going to do this deal anymore?" It was strange as a seller under exclusivity to have that conversation. We're used to being on the other side sometimes where things aren't going the right way. We decided to go back to them, and we were debating 12 billion versus 11, a hard message at 11 billion versus a softer message at 12, and, frankly, the numbers justified both of those prices.

BRIAN JAFFEE:

That's right.

HOLDEN SPAHT:

We decided on 11. We just felt like, we're talking, "These are not small numbers." I remember having a conversation with Ben. I was in Nantucket and I called him and I just said, "Hey, we're..." and I think I warned... I think I had two calls with him. The first call was to say, "We're not going to sell the company for 10 billion," and he was like, "Okay, disappointing. We've got a lot of advisers. We've got board approval. We're marching towards assigning."

BRIAN JAFFEE:

The merger agreement was almost done.

HOLDEN SPAHT:

"Merger agreement was almost done." And then I called him back a couple days later and said, "We'll sell it to you for 11." It took a couple days. I think he was like, "I can't... You guys are now changing the price on us. That's not how deals were like." I'm like, "Well, that's true. I agree, but we had a really good..." Look, these guys are pretty commercial. They saw the numbers. We showed them the forecast. We had the data. We'd actually gotten smarter.

BRIAN JAFFEE:

Yeah.

HOLDEN SPAHT:

One thing that happens sometimes when you're selling a company is you get smarter on your own company. By looking at that data and really understanding in a more granular level where volumes were going, have a better point of view, gave us more conviction. So anyway, we agreed to do the deal. We agreed on a new price of 11 billion, which was nine and a quarter in cash and 1.75 in stock with a really nice protective collar between sign and close for us. The deal got done and it was a massive... Obviously, the dollars, we put in over 2 billion going in, so it was a good day when the deal was announced.

BRIAN JAFFEE:

It was a good day. Just to go back to that conversation with Ben that you had, I remember you called me after the second conversation to tell me how it went. I think his reaction on... When you called him with the number, if I remember right, he just kind of was like, "I understand." It wasn't a super long discussion and he didn't get emotional about it. And then we actually updated the price in the merger agreement from 10 to 11, and we sent it back because there were still a couple things that we were negotiating in the agreement. That was one of the changes that went over. When we got the next draft back, they had accepted the change, so-

HOLDEN SPAHT:

Well, I think part of it too, it's kind of having [inaudible 00:42:24], right? Probably, he knew, after my first conversation, the best outcome would be 11 billion. We had advisors working on both sides too, and we were updating, "Where could this company go public?"

BRIAN JAFFEE:

That's right.

HOLDEN SPAHT:

Right? And they were showing us numbers north of 12. I did my job well that day.

BRIAN JAFFEE:

That, you did. It was done.

HOLDEN SPAHT:

I think he was ready for it and he thought, "Oh, god. Thank God they didn't ask for 12," probably. Who knows? It was a good day.

BRIAN JAFFEE:

It was maybe the first and only reverse re-trade in Thoma Bravo history.

HOLDEN SPAHT:

And he's such a good guy too, by the way. Those guys are great dealers. I remember he came out and we played golf with him, and he was like, "Yeah, you guys owe me a billion dollars." I think they felt good about it, the way it was handled. We felt good. I think it was a great deal for them.

BRIAN JAFFEE:

Agreed, and that's one thing that's a really good point actually. We take a lot of pride in how these assets perform for the next buyer that we ultimately sell to. I think for these guys, this was a home run. Like we said, the next year, it was a $4 trillion mortgage market, and this unlocked their ability to go buy Black Knight and to basically build out this thesis and vision that they had to automate this entire market, which is exactly what they've done.

HOLDEN SPAHT:

Yeah, so that's the story. Well, thanks for the time. It was really fun recapping, really appreciative for all the work you did, and what an incredible transaction. You don't get many like that in a career. It was a ton of fun to work on, and I look forward to our next conversation on Beyond the Deal.

BRIAN JAFFEE:

Yeah, Holden, that was awesome, so fun to go back through it and relive all the ups and downs of that deal. You look back on the outcome and it seems like, "Oh, this must have been so easy. You held this thing for not very long, and it was a great return," but a lot of tense moments, a lot of nervous spots where we had to make really important decisions. Super fun to get back through it.

HOLDEN SPAHT:

Yeah, well said. Well said.

ORLANDO BRAVO:

Listen to Thoma Bravo's Behind the Deal Season 4 on Spotify, Apple Podcasts, YouTube, or wherever you get your podcasts.