Our Point Of View: We’ve Been Through This Before

*We’ve Been Through This Before*
**By Ted Hicks**

***Yes, we’re in a downturn. Origination volume is predicted to fall again this year. However, at a time when you have fewer players and industry consolidation, the 15-year low volume prediction makes sense. Nothing I hear would lead me to believe otherwise. Why? Credit is still tight and foreclosures continue to be on the rise because there are still a tremendous number of people underwater on the value of their home now as compared to when they bought it. But with adversity comes opportunity. The good lenders will survive because they are able to offer superior service. How will the good technology vendors survive? Here’s my take:

There are certainly fewer opportunities for technology vendors today. So how do stay viable? Easy, you create new products to sell to existing or new clients. You could also enter a new market vertical. Lastly, you can grow by acquisition. Public companies are under constant pressure from investors to increase profits, even in a depressed market where it is extremely difficult to do. We at Calyx Software are in a good place because we are privately held and we have one owner/shareholder. Public companies are under the gun to grow, and if they don’t the investors exit.

Philosophically, this makes sense. When there are industry pressures and increased competition you will see public companies acquire other companies because that is the fastest way to grow, and if that doesn’t work, they’ll shed that acquisition.  There is a natural process of elimination. So, are we going to see more of these types of deals? Yes and no.  Yes, because we’ll most likely see those types of deals coming from the public sector and no, because private companies may do things a little differently.

Private companies will buckle down and invest in themselves more heavily.  They’ll improve their product line and create new complementary products for their clients.  And, only if it makes business sense, they’ll approach companies looking to get acquired.  Private companies have the luxury of being able to make important business decisions without the pressure of investors to grow fast— sometimes too fast.  Their acquisition process tends to be more strategic and more customer focused, without the urgency public companies experience.

The bottom line is that today’s technology vendor has to be just as creative and innovative as today’s lender in order to thrive. But have no fear, we’ve been here before. The long-term future of the space is cyclical. You see four- to seven-year cycles all the time. This could be a 10-year cycle, but I’m more optimistic. The market is turning and the best companies will survive