In a stunning strategic business transaction announced March 31, Rocket Companies, the Detroit-based fintech platform including mortgage, real estate, title and personal finance businesses, announced a definitive agreement to acquire Mr. Cooper Group in an all-stock transaction for $9.4 billion in equity value. Rocket said it will bring its mortgage recapture capabilities to a combined servicing book of $2.1 trillion across nearly 10 million clients, representing one in every six mortgages in America.
Just a few weeks ago Rocket acquired Redfin in a $1.75 billion all-stock deal.
“We feel like now is exactly the right time to pursue this sort of integration. We think the industry is ready for it,” said Rocket CEO Varun Krishna on a call with investors following the announcement.
With two huge acquisitions in the same month, Rocket continues to build what it is describing as a “scaled homeownership platform,” starting with the residential portal capabilities of Redfin all the way through its mortgage and homeownership businesses.
In a press release, Rocket stated that it will bring together the homeownership experience at scale with the acquisitions of Mr. Cooper and Redfin, allowing it to accelerate its AI-powered platform and remove the friction and complexities plaguing today’s home-buying process.
“Servicing is a critical pillar of homeownership, alongside home search and mortgage origination,” said Krishna. “With the right data and AI infrastructure, we will deliver the right products at the right time. That’s how we build lifelong relationships, by proactively unlocking benefits and meeting needs before they arise. We look forward to welcoming Mr. Cooper’s nearly 7 million clients.”
Krishna, in a message on LinkedIn, explained more about how and why the deal came together.
“Early in my time as CEO, I had the chance to meet Jay Bray and his team,” he wrote. “Right away, I was struck by the strength of their culture, innovative mindset and creativity. As we talked, it quickly became clear: we share the same vision for the future of homeownership. We knew we could do something extraordinary together, and that the combination of Rocket and Mr. Cooper would be greater than the sum of its parts.”
Details regarding how the company will be integrating both Redfin and Mr. Cooper are still somewhat scarce, but Krishna told investors that technology and data will be a huge part of the value, as Rocket highlighted now utilizing 30 petabytes of data to fuel its AI capabilities.
“This is fundamentally about data and AI at its core. When you have more data, you have more signals, you have a better ability to target clients with the right product at the right time,” he said.
Asked specifically by an investor about how the companies will integrate their tech stacks and other synergies in expenses, Krishna said it is “a good time to be approaching this technology integration” as related technologies have “matured.”
“We think that there’s a great opportunity to consolidate and create a better technology platform together…the technology itself has now advanced where capabilities like AI actually make integrating technology stacks more efficient, more intelligent and more painless.”
Rocket CFO Brian Brown added that there was other “duplication” in back office and administrative expenses as the two companies integrate.
Upon closing of the transaction, it is expected that Mr. Cooper Group’s Chairman and CEO Jay Bray will become president and CEO of Rocket Mortgage, reporting to Krishna. Dan Gilbert will remain chairman of Rocket Companies.
Upon completion of the transaction, Rocket shareholders will own approximately 75% of the combined company on a fully diluted basis pro forma for the Redfin transaction, while Mr. Cooper shareholders will own approximately 25%. The all-stock transaction is intended to be tax-free to Mr. Cooper shareholders.
The transaction is expected to generate $100 million in additional pre-tax revenue from higher recapture rates and attaching Rocket’s title, closing and appraisal services to Mr. Cooper’s existing originations. Rocket projects $400 million in pre-tax cost savings from streamlining operations, corporate expense and technology investments.
On the investor call, Brown said the company anticipates $330 million in potential “upside” assuming that the combined company reaches Rocket’s recapture rate of 83%, and also if mortgage rates stabilize closer to 6%.
“Mr. Cooper has been on a journey to transform the homeownership experience, and we have built the most advanced servicing platform in the mortgage industry,” said Bray. “By combining Mr. Cooper and Rocket, we will form the strongest mortgage company in the industry, offering an end-to-end homeownership experience backed by leading technology and grounded in customer care.”
Responding to an investor question regarding the bigger picture with both this acquisition and the Redfin deal, Krishna said Rocket has “a lot of conviction” around how it is approaching building its top-down model of building business across the real estate transaction.
“Our strategy is very clear—we want to grow in purchase, we want to grow in AI and in servicing, and these deals are a very direct accelerant of that,” he said.
