Posted by: Contributing columnist, Clarion-Ledger, Business, May 12, 2016
Although it has only received a small amount of press coverage, it’s hard to exaggerate the tremendous impact of the recent sale of Oxford’s FNC to Corelogic for $500 million. It’s not only the largest acquisition of a technology company in Mississippi in recent history, but it’s also a great story of a company started from scratch here in the state, funded from investors here in the state, and now creating 45 millionaires from their investors and employees.
Although FNC’s public altruism, most notably funding FNC Park, had made them a name most people knew in the Oxford area, very few Mississippians seem to recognize what a technology giant FNC has become. That may not be surprising since few of their customers are located in Mississippi, but their story is a great example of how a technology company can grow successfully by meeting a critical — even if mostly unknown — need in the market.
FNC started when Bill Rayburn, Dennis Tosh, Robert Dorsey and John Johnson — then Ole Miss finance professors and financial consultants — recognized a need in the market to manage collateral assets in mortgage transactions. To explain briefly, while the credit report and other data about the buyer of real estate was already becoming digital at that time, the appraisal and asset information about the homes was still locked in paper appraisals. FNC then revolutionized the processing of mortgages by digitizing the appraisals done on mortgages and enabling that data to be processed in a wide variety of ways. Their “Collatoral Management System” (CMS) became the standard in the industry.
Not to get too far into the weeds, but if you are at all familiar with how most mortgages work, you probably know that the bank that originates a mortgage often doesn’t keep that mortgage and instead sells it. Mortgages are then bundled by aggregators and turned into Mortgage Backed Securities (MBS’s). The MBS’s are then used to provide a variety of financial instruments.
One problem that was greatly exposed in the Financial crisis of 2008, though, was that the underlying value of these MBS’s is sometimes hard to determine — especially as asset values fluctuate. Investors seek to put together various grades of securities based on the mortgage portfolio’s, but prior to the proliferation of FNC, while the credit of the bundled mortgage owners was known, the value of the underlying properties was a mystery. It’s probably not an exaggeration to say that had FNC’s systems been in place extensively at that time, the instability that was behind the 2008 financial crisis would have been much more visible and perhaps even visible enough to have avoided the entire collapse.
As FNC began to grow and to expand internationally and even grew to more than 300 employees, they began to be noticed in many ways and even launched a trading company that would use their “CMS®” data to bundle mortgages directly to traders. Interestingly, the trading division was not a part of the $500 million sale and will become the next entrepreneurial venture for Bill Rayburn and a select group of around 30 former FNC employees.
With the sale to CoreLogic for $500 million now complete, FNC has now made the complete cycle of a technology company — from developing a product and proving the market to raising investor capital and giving those investors a big return on their investment. It’s worth noting that unlike a lot of big technology acquisitions, FNC actually had a proven track record of profitable operations — something that many technology companies continually struggle to do.
With the sale of FNC now complete, the cash from the sale is already starting to provide a big infusion of cash into Mississippi’s innovation ecosystem. Several investors from FNC have already taken interest in recent tech startups raising capital, and there is even a venture capital/angel fund being formed to invest in promising companies. Based on their proven track record, I’m sure there will be even more success stories from those activities, but even now the impact of the largest technology acquisition in Mississippi in recent memory is accelerating the innovation ecosystem in Mississippi. Congratulations to the entire FNC team and investors!
Tony Jeff is the president and CEO of Innovate Mississippi. He can be reached at tjeff@innovate.ms.