In November, the cloud banking software provider nCino (NCNO 0.03%) announced a deal to acquire the mortgage origination platform SimpleNexus for $1.2 billion, largely in stock. Although the company has expanded into other banking areas, nCino began by selling technology in the commercial lending space, so the move caught some by surprise at the time. In addition, any time a high-growth tech company makes an acquisition, there will be questions regarding whether it will be able to capture the full benefits of the purchase, or if it's just throwing money around.
It's been roughly seven months since the deal was announced, and almost five since it closed. So how is nCino's acquisition of SimpleNexus doing?
Image source: Getty Images.
What is SimpleNexus?
At its core, nCino provides a loan origination platform largely for commercial and small business lending. It speeds up the process for both loan originators and borrowers by automating manual processes and providing a much smoother process for all parties involved.
What SimpleNexus offers is more or less an extension of that, but for the mortgage side of banking at the point of sale. Its end-to-end platform provides lenders with seamless management of the mortgage origination process. Some of its capabilities include filling out a pre-approval application in under five minutes, offering a single platform for the borrower for the entire mortgage process, and providing e-signing and e-closing services so homebuyers can close on a loan from anywhere, which obviously came in handy earlier during the pandemic.
Image source: nCino.
Because SimpleNexus essentially offers a similar value proposition as nCino's commercial origination platform but for a different lending vertical, it offers nCino an opportunity to expand its relationships with its bank clients and increase the values of its contracts with them. Before the acquisition, SimpleNexus was already being used by 35 of the top 100 lenders, and one-in-seven mortgage originations in the U.S. came through its platform.
nCino generates the bulk of its revenue from subscriptions and operates using the common "land and expand" model, meaning that it may start a relationship with a bank with one service, and then, as that one proves its value, sell the bank more services over time. Management estimates that SimpleNexus will grow nCino's serviceable addressable market from $12 billion to $16 billion.
How is the integration going?
nCino has been working on integrating SimpleNexus and making it a key part of its business. In its fiscal 2023 first quarter, which ended April 30, SimpleNexus grew its customer base by 80% year over year, including independent mortgage banks and community banks. Revenue from SimpleNexus came in at $14.8 million -- almost 16% of total company revenue.
Now, nCino is working to aggressively cross-sell SimpleNexus to its legacy customers. The overlap is minimal. During the November conference call detailing its acquisition plan, management said that only 40 of nCino's 1,100 customers at the time used SimpleNexus. Selling origination platforms or any bank technology is no easy task and there are usually long sales cycles in the business, so it will take some time for nCino to ramp up cross-selling. But the company announced earlier this year that it had completed its first cross-sell of the SimpleNexus platform to a nCino customer.
Management also said it is seeing strong interest in SimpleNexus among its customer base, even as rising interest rates have pushed down overall mortgage demand.
"As interest rates rise, mortgage lenders are shifting their focus to finding ways to improve their operational efficiency and invest in technologies that will deliver high levels of borrower satisfaction," nCino CEO Pierre Naude said on the company's recent earnings call. "We view this window of time in the U.S. mortgage market as a strategic opportunity for our SimpleNexus business."
A good start to proving the concept
It's still early, but nCino does seem to be making some good progress with its cross-selling efforts. The SimpleNexus division is adding new customers and growing revenue, despite the state of the mortgage market. I'll certainly want to see more cross-selling but given the similarities of the SimpleNexus and nCino offerings, I do think they complement one another, and that SimpleNexus will further enhance nCino's ability to expand its relationships with lenders. For all of these reasons, I'm optimistic about the acquisition right now.
