Rocket Companies IPO offers 100 million shares at $18 each – far below target (original) (raw)
Rocket Companies Inc., the parent of the mortgage giant founded by billionaire Dan Gilbert, expects to raise 1.8billionwhenitgoespublicThursdaymorning—adropfromthe1.8 billion when it goes public Thursday morning — a drop from the 1.8billionwhenitgoespublicThursdaymorning—adropfromthe3.3 billion it had been targeting last week.
The Detroit-based company that includes Quicken Loans will put its initial public offering on the New York Stock Exchange under the symbol RKT. It will offer 100 million shares at $18 each.
Last week, Rocket had marketed 150 million shares at 20to20 to 20to22 each, with another 22.5 million shares available for the deal's underwriters to purchase. Despite the decrease, that would place the company as the seventh-largest IPO of 2020 so far, according to Dealogic.
"It’s unusual, although not unheard of, to have a deal size cut back," said Jay Ritter, a finance professor at the University of Florida who studies IPOs. "Usually when a deal size is cut substantially, it is because of weak demand. Similarly, they tend to raise the price and increase the number of shares when there's strong demand."
Uncertainty amidst the COVID-19 pandemic resulted in a number of stocks this year debuting undervalued, Ritter said, with their prices skyrocketing on the first day.
"It's not as crazy as the internet dot-com bubble," he said. "But average first-day prices from offer to close have been higher than in any other year since 1999 and 2000."
Rocket's size, however, means the offering is more likely to attract a greater proportion of long-term investors over short-term speculators compared to smaller firms, said Erik Gordon, a professor at the University of Michigan's Ross Business School.
"I think it’s going to be less exciting than the smaller and more speculative companies," he said. "I don’t think you're going to see it triple in price, and 10 days later lose half of those gains."
The mortgage and related services industry stocks have a collective 7.56% year-to-date loss, according to Zacks Investment Research.
But the industry has fared better than many others amid COVID-19 recession.
Record-low interest rates have helped to spur refinancings and bustling housing market. Originations could hit their highest level this year since 2005, according to the Mortgage Bankers Association. Low housing inventories also are keeping prices high. And stimulus checks and enhanced unemployment benefits have helped homeowners continue to pay their mortgages through the spring and early summer.
Rocket, whose business is in online mortgage lending, has benefited from the trend away from brick-and-mortar savings and loans, which the pandemic has accelerated, Ritter said.
Rocket Companies already is the nation's largest mortgage lender. It closed 145billioninloansin2019andrecorded145 billion in loans in 2019 and recorded 145billioninloansin2019andrecorded893.4 million in profit on revenue of more than $5.1 billion. Gilbert founded the company in 1985. In 2010, he moved its headquarters from the suburbs to downtown Detroit. The company employs some 20,000 across the country with most based in Detroit.
While Quicken's coffers do not necessarily need the capital from an IPO, Gordon said, going public could be a valuable recruiting opportunity for the company competing for young talent in technology and software development. Gordon has had students recruited for positions in Detroit only to be wooed by other firms with offers that include stock options with the potential to grow over time.
"That’s a lot easier to do when you’re a public company," he said. "If anything, it might help Detroit become a little more techy and more attractive to tech people and software people."
Under a multi-tiered stock system, Gilbert would maintain a 79% controlling stake in the company. The majority share would give him final say over major decisions such as the election of board directors, proposed mergers, or sale of the company's assets. Gilbert's net worth totals $7.5 billion, according to Forbes.
Rocket Companies is a holding company consisting of personal finance and consumer service brands, including Rocket Mortgage, Rocket Homes, Rocket Loans, Rocket Auto, Rock Central, Amrock, Core Digital Media, Rock Connections, Lendesk and Edison Financial.
The initial public offering will mark a major milestone for the mortgage giant. Ultimately, however, the longer-term performance will make the difference for shareholders and the city of Detroit, experts said.
"It's all about execution," Ritter said. "There may be some glitches on the first day of trading whether the stock goes up or down, but it doesn't matter in the long run."
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