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Rocket Companies (RKT -13%) is under pressure today after the Detroit-based fintech platform (mortgage, real estate, personal finance) agreed to acquire struggling digital real estate brokerage Redfin (RDFN). It was a pretty hefty premium at $12.50/sh, or an equity value of $1.75 bln. Redfin closed Friday at $5.82 and it seems Rocket shareholders are unhappy about the premium and that this is an all-stock deal.

• One of Redfin's attractive features is the heavy online traffic it generates. Rocket expects to benefit from Redfin's nearly 50 mln monthly visitors. The ability to cross-sell that traffic with Rocket Mortgage loans is a key benefit of the deal. Also, Redfin offers a staff of 2,200+ real estate agents across 42 states. In recent years, Redfin has expanded into the brokerage area using a quasi for-sale-by-owner model by charging sellers a lower commission but sellers do more of the work.
• Rocket expects the addition of Redfin will generate significant revenue synergies across search, real estate brokerage, mortgage origination, title and servicing. Rocket will match homebuyers with real estate agents and loan officers across the combined companies. Rocket also gains consumer insights across a data repository of 100 mln properties. RKT expects this data will strengthen its AI models and enable a more personalized experience.
• By the numbers, Rocket expects the combined company to achieve more than $200 mln in run-rate synergies by 2027, including $140 mln in cost synergies from rationalization of duplicative operations. In addition, Rocket expects more than $60 mln in revenue synergies from pairing its financing clients with Redfin real estate agents. The goal is to drive clients working with Redfin agents to Rocket's mortgage, title and servicing offerings.
• In addition to the premium being paid, we suspect investors are a bit worried about buying a company with exposure to a struggling real estate market. Redfin said recently that the mortgage rate lock-in effect is fading. However, homes are lingering on the market longer as demand is slowing and fewer people are buying homes. Redfin has cited economic uncertainty, tariffs, reductions in the federal workforce, return to office mandates etc. Also, home prices remain unaffordable for many. Deals are falling through more often. Home purchases were canceled in January 2025 at the highest January rate since 2017.
• Zillow (ZG) has done a great job by diversifying more into rentals, which makes sense because rental demand tends to pick up when housing sales slow. Zillow's rental business has been booming. Redfin also has gotten into rentals, but its business is struggling. In a bit of a twist, Redfin recently inked a deal to list Zillow rental ads on Redfin. Redfin plans to restructure its rentals segment and lay off 450 rentals employees. We mention this because rentals is another area where Redfin has struggled and RKT investors are likely are not thrilled about it.

While we see some benefits for Rocket by driving robust Redfin traffic to Rocket's mortgage, title and servicing offerings, Redfin has not performed well. It just provided downside Q1 guidance in late February. The real estate market is tough right now and this spring selling season is expected to be weaker than most. Also, Redfin's rental business has been struggling. We see the allure in creating a mini-Zillow, but performance needs to improve and this premium was pretty rich.