M&A Activity Intensifies in Title Space

September 20, 2018

Let’s make a deal! That’s been a popular phrase in the title industry over the past several months. And will be for some time. The merger and acquisition (M&A) trend isn’t isolated to the title space. According to Deloitte’s 2018 trends report, about 68 percent of executives at U.S.-headquartered corporations and 76 percent of leaders at domestic-based private equity firms say deal flow will increase in the next 12 months. The report goes on to say that financial services ranks high as an industry likely to experience convergence, with 38 percent of respondents predicting the sectors of private equity, asset management, insurance, real estate, and banking and securities as likely to converge.

“Changes in the financial services industry are driven by the costs of technology and compliance,” Deloitte said. “Another factor is margin pressure because of reduced fees on professional services.”

Acquiring technology assets now ranks number one as a strategic driver of M&A deals, according to the trends report. Twenty percent of respondents cite the acquisition of technology assets as the principal reason behind deals, up from 6 percent in the spring of 2016. Expanding customer bases in existing markets, and adding to product offerings or diversifying services, rank as the next two strategic imperatives.

Two other notable drivers that corporate respondents cite as a rationale behind deal-making are:

Digital strategy, a new response option for what is driving deals, ranked number four in importance, with 12 percent citing it as the most important driver.

Talent acquisition has more than doubled in importance from the spring of 2016, growing from 4 to 9 percent.

What’s less important? The report showed that there continues to be less emphasis on obtaining bargain-priced assets, with only 6 percent of respondents citing this as the most important driver. Entry into new geographic markets remained the same at 11 percent.

The Title Space

In the title industry, deals have included underwriters acquiring other underwriters and title companies, private equity firms investing in the industry, title companies purchasing competitors, and insurers making deals to expand their offerings.

“The diversity of rationales behind the recent deals is what is most interesting to me,” said Joe Petrelli, president of Demotech Inc. “We’re seeing deals to gain market share, deals to disrupt traditional title insurance and deals to integrate title insurance into an existing portfolio of services.”

Jonathan Yasko, managing member of EnTrust Solutions, called the title industry one of the “last undiscovered gems” by non-industry groups such as private equity firms and hedge funds. He’s intrigued by the spike of outside companies—with deep pockets—that want to come into a market that has been relatively unknown.

“It is no surprise when you look at the record-breaking revenue being produced of late, the outsiders are now wanting to get in on the action,” Yasko said. “The second part of the equation—and also timing of it all—is compliance. The cost of business has dramatically increased due to regulation and a mix of the people involved who do not want to deal with the additional hassles to stay in compliance. The combination of these two creates a feeding frenzy in the marketplace.”

Fidelity to Acquire Stewart for $1.2 Billion

Fidelity National Financial made the biggest splash in March. The company has a history of making significant acquisitions in the title space. In 2000, Fidelity completed the $1.2 billion purchase of Chicago Title. In 2008, Fidelity acquired LandAmerica for $235 million, giving the combined companies 46 percent of the market.

In a move that rivals its 2008 acquisition in terms of market share, Fidelity signed an agreement to acquire Stewart Information Services Corp. for $1.2 billion. The deal is subject to certain closing conditions, including Stewart stockholder approval, federal and state regulatory approvals. The deal is expected to close during the first or second quarter of 2019.

Fidelity intends to fund the purchase through a combination of cash, debt financing and FNF common stock. It hopes to achieve at least $135 million in operational cost synergies.

“We are very familiar with Stewart in the marketplace and see multiple areas where we can assist and accelerate Stewart’s growth plans,” said FNF CEO Raymond Quirk. “We also believe there are significant operational efficiencies we can bring to bear by leveraging FNF’s shared services infrastructure that will provide meaningful long-term value creation opportunities for our shareholders.”

According to the companies, Fidelity plans to retain and grow the Stewart brand. According to industry data, the Fidelity family of underwriters had 33 percent of the market share through 2017, while Stewart’s underwriters had nearly 11 percent.

“I am extremely proud of Stewart’s legacy of high-quality underwriting and customer-focused service delivered by our loyal associates,” said Stewart CEO Matt Morris. “This transaction with Fidelity is an opportunity to continue building on this legacy, enhance innovation and create a more robust company for the future.”

After Stewart’s revenues declined from $2.1 billion in 2016 to $1.9 billion in 2017, the company’s board of directors formed a committee to review strategic alternatives.

“We are excited to welcome Stewart, its employees and its customers to the FNF family,” said FNF Chairman William P. Foley II. “The venerable Stewart brand has a long and respected history in the title insurance industry and we see tremendous potential in working with the Stewart management team to invest in and grow the Stewart brand on a national basis as part of our long-term, successful strategy of operating multiple title insurance brands under the FNF umbrella.”

John Campbell, an analyst for the financial services firm Stephens Inc., reported that many in the industry believed Fidelity was the third or fourth option to purchase Stewart. He said it’s likely the deal makes it through a lengthy review process, but added that his firm does not “believe it is a layup and will likely take some concessions along the way.” To settle Federal Trade Commission (FTC) charges that the LandAmerica deal was anticompetitive, Fidelity sold several title plants and related assets in Oregon and Michigan.

“While we do believe that much of the scrutiny will happen at the local/county level, we think it is worth assessing which potential states stand out as red flags,” Campbell wrote in a note to investors. According to Stephens, states that should be watched include California, Illinois, Texas, New York and Ohio.

On Sept. 3, Stewart's stockholders approved the plan to merge.

Radian Acquires Entitle Direct

Radian Group Inc. continued its expansion into the title space with its purchase of EnTitle Direct Group Inc. Radian reported that the acquisition is consistent with the company’s growth and diversification strategy, as well as its focus on the core product offerings of its mortgage and real estate services business. In 2015, Radian subsidiary Clayton Holdings acquired ValuAmerica. EnTitle Direct, with its 40 state title insurance licenses, will complement the geographic reach of ValuAmerica, according to Radian.

“We are delighted to welcome Entitle to the Radian family of companies, expanding our capabilities and providing our customers across the country with the title insurance and settlement services they want and need,” said Rick Thornberry, Radian’s chief executive officer. “This is another example of the progress we are making to reposition our Services segment for sustained profitability, by focusing on and investing in the products and services that are core to that business.”

Entitle Direct will continue to operate under its current brand. The company has offices in Independence, Ohio; Pittsburgh, Pa.; Corona, Calif.; and Austin, Texas. Eric Ray, senior executive vice president of technology and transaction services for Radian, will be responsible for the strategic direction and leadership for the company’s title and settlement services businesses.

No other terms of the transaction were announced.

Private Equity Firm Invests in Alliant National Title

Meanwhile, Presidio Investors, a private equity firm specializing in mid-market companies, agreed to partner and invest in Colorado-based underwriter Alliant National Title Insurance Co.

According to a release, leadership and personnel at Alliant National will remain the same. Alliant National partners with over 400 independent title agents as a licensed underwriter in 22 states, with annual revenues exceeding $120 million.

Robert Grubb, Alliant National CEO and president, said the partnership can accelerate plans to expand its network of independent agents. He added that Presidio’s culture closely aligns with Alliant National.

“Alliant National believes in the essential role independent agents play in protecting the property rights of our mutual customers,” Grubb said. “With the help of our trusted agents and our amazing team, we’ve built a thriving company aligned with the finest independent title insurance agents in the country.”

In a video to its agents, Grubb said the company’s possibilities will be wider than before to help title agents expand their business. “We will have the ability to consider and implement things that we have not been able to implement before,” he said.

Scott Hendrickson, Alliant National’s chief financial officer, said Presidio brings additional capital to the partnership and has connections with lenders, the real estate community, and in the technology and fintech space that the underwriter will be able to utilize.

“There’s a lot of value they can bring to the opportunity along with what we’ve already built,” Hendrickson added. “They like the differentiated business model where we only support independent agents. And that spurred their interest.”

Kyle Rank, Alliant National’s executive vice president of agency, added “This is an exciting opportunity for Alliant National and our agents. The trust our agents have placed in us has allowed us to grow to this degree, and we now have a chance to deliver something meaningful back to them. We’ll be able to provide more solutions, add more value—and provide additional resources that can help our agents excel in their businesses.”

Presidio’s investment is pending approval from regulators and Alliant National’s current ownership group. Waller Helms Advisors served as the exclusive financial advisor. Brownstein Hyatt Farber Schreck served as legal counsel to Alliant National in the transaction.

Founded in 2007, Presidio focuses on investing in entrepreneur-led businesses in the lower middle market. Partner companies include Metropolitan Bank, CamTech, American Residential Communities, Interface Financial Group, National Health Finance and Hattrick Sports Group.

“We are excited to partner with Bob and his team to help Alliant National during its next phase of development,” said Chris Puscasiu, managing partner of Presidio. “Throughout the entire process, we have been impressed by the company’s entrepreneurial culture and drive. We believe that Presidio’s experience and access to additional capital will help Alliant National accelerate its growth and continue to improve its already strong service offerings to its independent agent partners.”

Agents National Deal Completed

Presidio’s deal comes on the heels of another transaction with an investment firm buying into the industry. Incenter, a subsidiary of the Blackstone Group that provides trading, advisory and fulfillment services for lenders and specialty finance companies, completed in February its purchase of Agents National Title Insurance Co. (ANTIC).

John Keratsis, senior managing director of lender services at Incenter, said one of the challenges facing many of his company’s clients is the time required to complete a transaction and how to shorten that timeframe while providing excellent customer service.

“Our experience has shown that one of the solutions to tackle this challenge is title insurance, which has been a key driver for us bringing ANTIC into the Incenter family,” he added. “ANTIC has a demonstrated track record of helping title agents get loans closed as fast as possible while delivering meaningful service promises through talent and technology.”

ANTIC President David Townsend added, “Our mission at ANTIC is to reset industry standards for what makes a great title underwriter. As part of the Incenter family, we will continue to support title agents with fast, reliable underwriting services. We are committed to the growth of the business and look forward to entering new markets and growing awareness in key geographies.”

Regional Title Companies Get in the Act

In a deal involving title agencies, Title Financial Corporation and its subsidiary, First American Title Company of Montana, Inc. acquired American Title & Escrow and Carbon County Abstract & Title. TFC operates in Montana, Idaho and Wyoming. The deal expands the company’s geographic network.

“We are very excited to be combining teams with American Title & Escrow and Carbon County Abstract & Title,” said Quinn Stufflebeam, chief executive officer of TFC. “By leveraging our collective strength and coverage, we will be able to better serve our customers by providing a service experience designed to make the real estate transaction easy for our customers.”

In addition to First American Title Company of Montana, the TFC family of companies consists of Insured Titles, Gillette Title Services, Jackson Hole Title & Escrow, Laramie County Abstract and Title Co., Title Financial Specialty Services and Title Financial Exchange Services.

The merger unites two companies with a long history of collaboration. The companies jointly purchased First American Title Company in Ennis in 2002 and First American Title Company in Bozeman in 2004. This expanding alliance creates a footprint that covers 66 counties in Montana, Idaho and Wyoming.

“This exciting transaction unites two companies with deep roots in Montana and Idaho, who both pride themselves on providing an excellent customer experience, and we are looking forward to the new opportunities this presents,” said Ted Lovec, president and chief executive officer of American Title & Escrow and Carbon County Abstract & Title. Lovec and Carol Kirby are both remaining on the corporate team. Lovec has accepted a position on the Board of Directors of TFC. He will also be serving as executive vice president while Kirby will serve as vice president of operations.

Where We Go From Here

Experts believe there will continue be more acquisition activity over the next year in the title industry.

“I suspect there will be a flurry of acquisitions in the near future, as well as the entry of outsiders,” Petrelli said. “The aging of the leadership at independent agencies will drive some of this. Discerning between acquisitions for the sake of acquisition and acquisitions related to acquiring the agency of a retiring baby boomer who owns an agency will be an interesting challenge.”

In addition to aging demographics, other issues driving consolidation include regulatory concerns, the CFPB and cyberfraud. A company’s overall strength, according to Yasko, will be dependent on its size. For several years, Yasko has said the industry is moving toward a property and casualty model and is now being pushed by groups looking to get into the game.

“The title world has historically been too resistant to change and implementation of technology, yet we must adapt to this as this is the wave of the future,” Yasko said. “There is a reason why underwriters are acquiring not only agents as direct shops, but other underwriters as well. The same goes for large title agency shops buying up smaller ones, or in some instances larger ones. It is less about competition, than it is the ability to meet the demand of availability across the nation with localized presence and knowledge.”

Petrelli agreed that despite all the M&A activity, the local expertise title agents provide remains invaluable.

“There may be fewer underwriters for independent agents, however, those who remain will need agents more than ever,” Petrelli said. “Nothing happens without production. If I was an agent, I would be more concerned about disrupters than the consolidation of title underwriters.”

Jeremy Yohe is ALTA’s vice president of communications. He can be reached at jyohe@alta.org.

Contact ALTA at 202-296-3671 or communications@alta.org.