HP firm MphasiS in a strategic move to acquire Digital Risk for $175 million

Infotech Lead India: Continuing with its acquisition strategy, the Bangalore based MphasiS, an HP company, has acquired Digital Risk, a provider of Risk, Compliances and Transaction Management Solutions, in a deal valued $175 million.

Ganesh Ayyar, chief executive officer, MphasiS

The $175 million acquisition includes an additional earn-out component.

Digital Risk is the third significant acquisition for MphasiS in the last 3 years.

Previously, MphasiS acquired Wyde Corporation, a global software vendor and creator of the Wynsure platform, an insurance policy administration solution in 2011. In 2010, the HP company bought Fortify Infrastructure Services.

Making Mortgages Safe, a solution suite of Digital Risk is deployed by over 15 blue chip clients across key mortgage constituencies – Originators, Insurers, Issuers and Investors. Digital Risk is licensed to operate in 46 states in the United States and the company is expected to earn revenue of $127 million in 2012. In last three years the company has seen a revenue CAGR growth of 70 percent.

This alliance will provide an upper hand to MphasiS as it will assist the company to become the leader in the U.S. mortgage service market and also enhances the onshore presence in U.S. MphasiS is looking forward to expand its footprint in the U.S. along with creating 500 new job opportunities. As the risk management in the mortgage market is a global issue so it will open new avenues for the company with their unique offerings.

“We began our journey of transformation in 2010 focusing on the financial services industry. This acquisition is central to our strategy of offering specialized services in chosen segments. Digital Risk offers highly specialized services in risk and compliance area, specific to mortgage industry. Their analytics platform combined with 1500 mortgage specialists makes them unique and differentiated,” said Ganesh Ayyar, chief executive officer, MphasiS.

After completion of the procedure Digital Risk will continue to operate as a standalone business unit and the founder will lead the company under CEO of MphasiS.

Scope of development in this space is huge as it is evident, from 2009-2011 per loan origination costs increased by 40 percent and servicing costs increased by 36 percent, according to Mortgage Bankers Association.

Risk management and compliance activities such as quality control, loan purchase due diligence, loan portfolio surveillance and analytics are the main reason behind the cost increase.  To reduce internal fixed costs, financial institutions need to make improvements in these areas, which is essential for producing defect free loans and restoring sustainability to US residential mortgage marketing and securitization.

Aparna Mullick
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