📘The Blueprint for Tech Take-Privates: Thoma Bravo’s Ellie Mae Case Study

Hi all—excited to share that Road To Carry crossed 3,500 subscribers. Thank you! We’ve also welcomed some very senior investors to the readership. One day, I hope to invite them to share their knowledge with the broader audience. Until then, here’s another piece from me.

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Company Overview

Company History
Founded in 1997, Ellie Mae started with a simple idea: bring the mortgage process online. Back then, “digitization” meant faxing fewer forms.

Its flagship product, Encompass, launched in the early 2000s as a cloud-based origination platform covering the entire mortgage lifecycle—from application to closing. Core offerings included:

Going Public and Setting the Stage
Ellie Mae went public in 2011 and saw its stock soar over the following years as revenue grew quickly during a generally strong post-GFC housing market. By 2018, the stock peaked around $100.

Ellie Mae Stock Price

However, fortunes turned as interest rates rose and mortgage volumes fell in 2018. As U.S. originations declined and lenders merged (shrinking Ellie’s customer base), growth stalled—just 3% YoY in Q4 2018—and margins came under pressure. The stock plunged over 30% in late 2018, setting the stage for Thoma Bravo.

Thoma Bravo’s Take-Private
In April 2019, Thoma took Ellie Mae private at $99 per share in a $3.7B all-cash deal. A few reasons they were among the few who could pull this off:

With that context, let’s dive into the playbook.

Despite the short-term headwinds Ellie Mae was experiencing, the mortgage lending market was and continues to be a huge market with long-term growth trajectory. And according to a 2019 interview, Ellie Mae was touching ~40% of all U.S. mortgage loans.

U.S. Mortgage Debt Outstanding ($ in trillions)

Ellie Mae exhibited the hallmarks of great B2B software: mission-critical workflows and network effects. With 95%+ retention, Encompass sat at the center of daily operations and connected lenders to partners, investors, and regulators.

But here are the real economics behind the 95%+ retention:

(i) Rising origination costs. The cost per loan nearly doubled from ~$5k in 2008 to ~$9k in 2018.

Much of the spend is sales (commissions) and fulfillment/production support (underwriting and processing).

(ii) Profit pressure—and Encompass uplift. Even in a decent year (2021), lenders earned roughly ~$3k per loan. 

And according to a 2022 research conducted by MarketWise Advisors, Ellie Mae’s Encompass platform generated $971 incremental profits per loan on average. 

That’s a 30% profitability increase.

(iii) ROI on software. A 2019 interview noted Ellie Mae earned ~$185 per loan. If that approximates customer cost, the ROI is 5x+. 

In short: Ellie Mae’s software was a small cost (2% of total expense) that drove a 30% uplift in average loan profit (translating to an 8% improvement in profitability).

Heading into the buyout, Ellie Mae’s profitability was slipping: (i) gross margin declined; (ii) opex rose; (iii) EBITDA margin fell ~5 pts. Growth had cooled to 3% YoY in Q4 2018, triggering the stock drop.

But by their exit in 2020E, company was reportedly generating $470M of EBITDA at a whopping 52% EBITDA margin. While the specific numbers are not publicly available, we can glean a few operational initiatives (many of which are common take-private playbook for Thoma):

(i) Pricing increases: Ellie Mae had an attractive 5-year contract structure, but the contracts didn’t have any built-in price increases. Under Thoma, the company aggressively increased prices and added annual price escalators as contracts came up for renewal.

(ii) Cost cuts: Thoma reportedly cut $50M of costs right off the bet–with a focus on the R&D department. With the acquisition of Capsilon (which we will touch on more below), the company aggressively laid off Ellie Mae’s R&D team based in California and transitioned to a R&D hub in India where Capsilon already had a significant presence.

Just months after the take-private, Ellie Mae announced the acquisition of Capsilon, an AI and document automation company. The strategic rationale was clear:

Plus the acquisition was financial accretive–once integrated, Capsilon reportedly generated $45M of revenue and $20M of EBITDA.

Thoma was contrarian when public markets punished a growth slowdown, but they knew the plan post-close and executed fast.

So what could have gone wrong here? 

1. Technology Disruption
Competitors were already pushing modern, API-first platforms that threatened to make legacy systems look dated. A failure to keep pace with automation and user experience could have driven churn for Encompass over time.
Mitigation: Company moved aggressively to close this innovation gap via M&A, specifically via acquisition of Capsilon. This allowed the company to maintain technological relevance without risking near-term profitability through heavy R&D spending.

2. Mortgage Cyclicality
Ellie Mae’s growth was tied to U.S. mortgage origination volumes, which are highly sensitive to interest rate cycles. 
Mitigation: Thoma likely underwrote the downside case stability banking on Ellie Mae’s 5-year contract subscription model and 95%+ retention. And while refi activity might ebb and flow, the long-term digitization of the mortgage process—including compliance, data, and analytics modules—offered structural tailwinds beyond cyclical mortgage demand.

3. Execution & Integration Risk

Execution of cost cutting initiatives and Integrating a high-growth AI acquisition like Capsilon into a mature platform carries risk.
Mitigation: Again, the multi-year contracts and customer stickiness provides wiggle room to iterate on integration. ICE acquired Ellie Mae within ~18 months, so we can’t fully judge long-run standalone impacts of the cost program.

Ellie Mae is a standout success story in B2B software take-private with incredible returns of 4x+ MOIC / 200%+ IRR in 18 months. 

While the operational playbook did wonders to the business to grow the revenue from $480M in 2018 to $900M in 2020 and EBITDA from ~$120M in 2018 to ~$470M in 2020, there was also luck involved–mortgage origination volume was literally at its trough in Q1 2019 (when Thoma acquired Ellie Mae for $3.7B) and near the peak in Q3 2020 (when ICE acquired Ellie Mae for $11B).

It’ll be interesting to see whether Thoma Bravo’s recent spree becomes a new wave of B2B software deals worthy of case-study write-ups. I’ll be cheering them on.

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