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Rocket Companies (RKT -7%) is at it again. Just three weeks after announcing a deal to acquire Redfin (RDFN -10%), the Detroit-based fintech platform (mortgage, real estate, personal finance) announced today that it will acquire Mr. Cooper (COOP +17%) in an all-stock transaction for $9.4 bln in equity value. Mr. Cooper is the largest home loan servicer in the US. The deal has been approved by both boards and is expected to close in Q4.

• What's interesting is that COOP is much larger than RKT. COOP shareholders will receive 11 RKT shares for each share of COOP. This represents a $143.33 value based on Friday's close, for a 37% premium. Upon completion RKT shareholders will own 75% of the combined company on a pro forma that includes the Redfin transaction, while Mr. Cooper shareholders will own approximately 25%.
• Rocket already has a good size servicing business, but clearly adding COOP with turbocharge that effort. The combined company will service more than $2.1 trillion in loan volume, or one in every six mortgages in America. Just so people understand, the bank where you send your mortgage payment to usually does not hold the actual loan. Rather, for a fee, the servicer collects mortgage payments and passes funds to investors, tax authorities, insurance companies etc.
• A key goal of the combination for Rocket is to accelerate its origination-servicing recapture flywheel. Rocket Mortgage notes that it has been #1 in mortgage origination 12 times, driving the company's 83% recapture rate, which is triple the industry average. With a significantly larger servicing portfolio, Rocket is poised to benefit even more from its industry-leading retention and recapture rates. Also, Rocket will gain nearly 7 mln additional clients and 150 mln annual customer interactions.
• The company estimates that the transaction is expected to generate $100 mln in additional pre-tax revenue from higher recapture rates and attaching Rocket's title, closing and appraisal services to Mr. Cooper's existing originations. In addition, Rocket projects $400 mln in pre-tax cost savings from streamlining operations, corporate expense and technology investments. Rocket sees servicing as a critical pillar of homeownership, alongside home search and mortgage origination.

We see the crown jewel for Rocket as being COOP's massive amount of mortgage servicing clients. We see the cross-selling benefit with Rocket's other products like mortgage orginiations, title, closing and appraisal services. Also, Redfin will be a good top-of-funnel provider of homebuyer clients that can filter down to originating and servicing all those eventual mortgages when they make a purchase.

Not surprisingly, RKT is trading lower on the deal. In addition to the premium being paid, we suspect investors are not thrilled about this being an all-stock deal. They are likely also worried about buying a company with exposure to a struggling real estate market and a stretched consumer. There are also concerns about economic uncertainty, tariffs, reductions in the federal workforce etc. Also, home prices remain unaffordable for many and deals are falling through more often. We are a bit surprised COOP agreed to a deal, given its steady financial performance and uptrending stock price.