Rocket to buy real estate brokerage Redfin in $1.75B deal

In a bid to accelerate its market share in home purchase lending, Rocket Companies Inc. plans to acquire online real estate brokerage Redfin Corp. in a $1.75 billion all-stock deal announced Monday morning.

The proposed deal should help the Detroit-based mortgage lender “connect the dots” in a disparate real estate ecosystem. But the extent that it leads to a slew of new mortgage loans remains to be seen.

Moreover, the acquisition by the publicly traded parent of Rocket Mortgage and a host of other consumer financial services companies further positions the company as a one-stop shop for homeownership. Acquiring Seattle-based Redfin accelerates that, according to Rocket CEO Varun Krishna.

Eliminating significant “friction” in the homebuying process — disparate home search, brokerage, financing, title and insurance — serves as the key driver for the acquisition, Rocket executives say.

“This disjointed system creates confusion, adds friction and drives up transaction fees totaling roughly 10% of a home’s cost, and yet this inefficient, costly experience is still the accepted norm,” Krishna said on a conference call Monday with investors and analysts. “We reject that status quo. There’s a better way, and we’re going to make it happen by uniting search, buying, selling, mortgage, title and servicing all under Rocket.”

In addition to the Redfin deal, Rocket also announced an overhaul to its corporate structure, winding down a holding company through which billionaire founder Dan Gilbert and a handful of others controlled the company. More on that below.

If approved by shareholders, the deal would close in either the second or third quarter of this year. Krishna said executives don’t expect significant regulatory challenges to arise.

While mortgage makes for the largest part of Rocket Companies’ business, the company has also long operated Rocket Homes, a home search platform similar to what Redfin has offered. No changes are expected to Rocket Homes, according to a company spokesperson.

“Rocket, for a number of years now, has been focused on going after (mortgage) borrowers as early in the process as possible,” said Guy Cecala, executive chairman of mortgage industry trade publication Inside Mortgage Finance. “This connects the dots and sets Rocket apart from other lenders.”

Last month, the federal Consumer Financial Protection Bureau dropped a lawsuit filed last year against Rocket Homes alleging kickbacks to real estate brokers and attempts to steer consumers toward loans with Rocket Mortgage.

Financial details

The proposed deal values Redfin at $1.75 billion, or $12.50 per share. That represents a healthy 63% premium over the company’s average weighted stock price over the last 30 days, according to a news release, and the acquisition has a total enterprise value of $2.36 billion.

But it also highlights how low the overall housing market has fallen, at least compared to the COVID-19 pandemic-era housing boom of late 2020 and early 2021.

At the company’s peak in February 2021, Redfin shares were trading at over $70 per share, representing a total market value of more than $9 billion. While shares spiked on news of the Rocket deal, the company’s market value Monday was just more than $1.2 billion.

Founded in 2004 and public since 2017, Redfin shares will be exchanged for 0.7926 shares of Rocket Companies Class A common stock upon completion of the deal. The acquisition has been approved by directors at both companies and is subject to approval by Redfin shareholders.

Morgan Stanley is financial adviser for Rocket and Paul Weiss is legal counsel. Goldman Sachs is financial adviser for Redfin and Fenwick is legal counsel.

Rocket executives say the company will benefit from the roughly 50 million monthly visitors to Redfin’s website and its 1 million active purchase and rental listing as well as more than 2,200 real estate agents in 42 states. Rocket, long known for its focus on providing refinancing loans, says the deal is expected to drive growth in the home purchase space.

The deal is also expected to generate more than $60 million in revenue synergies from pairing the company’s financing clients with Redfin real estate agents, and from driving clients working with Redfin agents to Rocket’s mortgage, title and servicing offerings, according to the release.

The release also notes an anticipated $200 million in cost-savings synergies by 2027, but given the size of the proposed combined companies, that’s unlikely to move the needle for most consumers who continue to face high housing costs and elevated interest rates, said Brian Connolly, a real estate-focused business law professor at the University of Michigan’s Ross School of Business.

“If that does happen, it’s going to be hard for a consumer to detect how that’s happening,” Connolly said of proposed cost savings from the deal.

For its part, Redfin has struggled with profitability, losing in excess of $100 million in each of the last two years. The company has a market cap of just less than $1.3 billion, compared with Rocket’s market cap of $28 billion.

Redfin’s stock (NASDAQ: RDFN) was up nearly 70% Monday morning, with shares trading at just less than $10 as of 11 a.m. By comparison, Rocket (NYSE: RKT) shares fell throughout the day and were down more than 16% at 2:50 p.m., with shares at $13.14.

Going forward, the question is whether consumers feel comfortable putting all their proverbial homebuying needs in one basket controlled by one company.

“It’s very hard to connect homebuying with mortgage lending,” Cecala said. “Most people don’t like to commit to a specific lender while shopping for a home.”

At the end of 2024, Rocket stood as the third largest mortgage lender in the country, with about $95.8 billion in originations and 5.8% total market share, per IMF data.

“We really think of this as two data and tech companies sort of coming together to solve an important problem of homeownership,” Rocket CEO Krishna said of the deal.

Change in corporate structure

In rolling out the announced Redfin deal, Rocket Companies on Monday also announced a new incentive to shareholders, as well as an overhauled corporate structure.

Since going public in the summer of 2020, Rocket founder Dan Gilbert and a handful of others have controlled the vast majority of the company through a holding company called Rock Holdings Inc., known as an “Up-C” structure. That structure will now end.

Going forward, Gilbert and other Rock Holdings shareholders will hold their stock directly in Rocket Companies. The move reduces the number of classes of common stock from four to two, and the company will also change its board structure, a move that “effectively eliminates the supervoting rights” held by Gilbert and other Rock Holdings shareholders, according to Rocket Companies CFO Brian Brown.

In total, Gilbert will hold nearly 1.5 billion of the new Class L common shares and have more than 62% of the combined voting power for any matters requiring a board vote. As such, Rocket will remain a “controlled company,” based on definitions by the New York Stock Exchange, according to a Monday morning securities filing.

“We believe that the collapse of the Up-C comes with other benefits, including a simplified corporate structure with easier-to-understand tax obligations and financial statement recording,” Brown said on the Monday morning call. “It also makes it easier to use our stock as a currency for acquisitions such as (Redfin).”

In addition to the collapse of the Up-C structure, Brown announced that the company’s board has declared a special dividend of 80 cents per share as a way of dispersing the $119 million in cash on hand the company has built up. The move makes for Rocket’s first dividend payment since March 2022, Brown said.

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