Will Rocket Companies hit a home run with Redfin acquisition?

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Looking to grow its share of the mortgage lending market, Rocket Companies (NYSE:RKT) is in the process of acquiring Redfin Corporation (NASDAQ: RDFN), the digital real estate brokerage firm, for $1.75 billion. The deal, in which Redfin shareholders will get 0.7926 Rocket Companies shares for each Redfin share, values each Redfin share at $12.50. Redfin shares have been steadily rising since the deal was announced on March 10, going from $9.77 that day to $10.48 on March 25 (on March 7, before the deal was announced, the stock closed at $5.82). And Rocket Companies stock has held steady at about its March 10 level, closing at $13.38 on March 25 (the stock closed at $15.77 on March 7). Rocket Mortgage shareholders are receiving a special dividend of $0.80 on April 3 in connection with the deal, related to a change in the company’s capital structure to facilitate the acquisition.

In a media release announcing the transaction, Varun Krishna, CEO, Rocket Companies, noted, “Rocket and Redfin have a unified vision of a better way to buy and sell homes. Together, we will improve the experience by connecting traditionally disparate steps of the search and financing process with leading technology that removes friction, reduces costs and increases value to American homebuyers.” The deal is expected to close in the second or third quarter of the year, subject to regulatory approvals (and Redfin shareholders have to give the deal a go-ahead too).

The Detroit-based Rocket Companies, founded by Dan Gilbert, got its start as Rock Financial in 1985 and got into digital mortgage lending in 1999. The company changed its name to Quicken Loans in 1999 and had reached $30 billion in closed loan volume by the end of 2011. The company came out with its initial public offering in August 2020, priced at $18 per share, with the shares closing about 20% higher the day they started trading. Today, the Rocket Companies umbrella includes Rocket Mortgage, Rocket Homes, Rocket Close, Rocket Money and Rocket Loans. Will the Redfin acquisition help Rocket Companies home in on merger synergies? And what’s ahead for the stock looking beyond the acquisition?