Please ensure Javascript is enabled for purposes of website accessibility

Here's Why Ellie Mae Stock Is Up More Than 20% Today

By Matthew Frankel, CFP® - Updated Apr 23, 2019 at 4:45PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The mortgage technology company is being acquired, and the deal could potentially get even sweeter for investors.

What happened

Mortgage technology specialist Ellie Mae (ELLI) has agreed to be acquired by Thoma Bravo, a private equity firm. As of 11:52 a.m. EST, shares of the company were up 21%. 

So what

The acquisition is an all-cash transaction, and upon the closing of the deal, Ellie Mae shareholders will receive $99 in cash for each share of stock they own. This is a premium of about 21% to the previous day's close, after an already strong start to 2019, although it's still well below the 52-week high of $116.90.

Miniature house, calculator, keys, and money.

Image source: Getty Images.

It may seem odd that the acquisition price of Ellie Mae is $99 per share and the stock spiked to slightly higher than $99 following the announcement. Generally speaking, acquisition targets in these situations will spike, but to a price somewhat lower than the buyout price in order to compensate for the regulatory risk that the deal won't get done.

To be clear, this deal is subject to approval by Ellie Mae stockholders, as well as the approval of regulatory authorities.

The reason for the extra boost in price is that the deal also includes a 35-day "go-shop" provision. Essentially, this means that Ellie Mae can actively solicit competing offers, and will have the right to terminate its agreement with Thoma Bravo if it can find a superior offer. In short, the shares are pricing in the chance that someone else will swoop in and offer even more for Ellie Mae.

Now what

The deal is expected to close during the second or third quarter of this year. Unless Ellie Mae receives a better offer within the next 35 days, there shouldn't be any major roadblocks to getting the deal done.

Check out the latest earnings call transcripts for companies we cover.

Matthew Frankel, CFP has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Ellie Mae. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Ellie Mae, Inc. Stock Quote
Ellie Mae, Inc.

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/16/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.