Ground-floor investors of Rocket Companies Inc. have some significant tailwinds behind them as the Detroit-based mortgage lending giant finalizes its initial public offering, which is expected to happen as early as this week.
Beyond being viewed as a mature, profitable company, the soon-to-be parent organization of Quicken Loans Inc. could be in the upper echelons of U.S. initial public offerings.
Moreover, Rocket Companies' entry into the public markets appears to come during a ripe time, even despite broader economic pain such as skyrocketing unemployment and contracting GDP.
Jay Ritter, an IPO expert and finance professor at the Warrington College of Business at the University of Florida, noted that average first-day returns on public offerings in 2020 are at 39 percent, their highest level since the dot com boom and bust of the late 1990s and early 2000s.
Ritter cautioned that doesn't mean investors into the Rocket Companies stock should expect to cash out with four times their money after a day.
"Now that doesn't guarantee that Rocket's is going to go up by 39 percent," Ritter said. "In fact, if it did I would view it as a colossal failure by the underwriters to price the offering correctly."
Plans as of last week called for Rocket Companies to price its stock on Aug. 5, meaning the company could have its offering as soon as the following morning. The company plans to trade on the New York Stock Exchange under the symbol RKT.
It's unclear whether Gilbert or Quicken Loans CEO Jay Farner plan to be on hand for the ceremonial ringing of the bell to open the stock market on the day of the IPO.
Further bolstering the company's standing as a public entity is a red-hot mortgage market driven by record-low mortgage interest rates, according to the Mortgage Bankers Association trade group. In mid-July, the group forecast that 2020 will see $2.8 trillion in mortgage originations, the strongest year for the industry since 2005 when the total landed at $3 trillion.
With its proposed IPO, Rocket Companies aims to raise as much as $3.8 billion at a share price of between $20 and $22, and a valuation of around $40 billion. The proposed offering amounts to 8 percent of the new company, which will remain tightly controlled by billionaire co-founder Dan Gilbert. Gilbert's Rock Holdings Inc. will hold 79 percent of the voting power of Rocket Companies.
The Rocket Companies IPO has 20 underwriters, which will have the option to purchase 22.5 million shares of the company, according to the company's S-1 regulatory filing. Wall Street heavy hitters Goldman Sachs & Co., Morgan Stanley & Co., Credit Suisse Securities, J.P. Morgan Securities and RBC Capital Markets are the representatives of the underwriters. Each firm, through spokespeople, declined to comment for this report.
Normally companies going public aim to have about 90 percent of their shares allocated to those types of institutional investors, leaving a small handful available for individual investors, according to Ritter.
As of July 30, there were 89 IPOs priced in 2020, a drop of 8.2 percent in the number of offerings from the same date last year, according to data from Greenwich, Conn.-based investment advisory firm Renaissance Capital LLC. Those 89 companies raised a total of $28.5 billion, a decline of 15.6 percent from the amount raised at the same point last year, according to the Renaissance data.
Rocket Companies' target raise of $3.8 billion still falls far behind the largest recorded IPOs in U.S. history, such as Chinese e-commerce platform Alibaba's raise of more than $21.7 billion in 2014 and Visa's 2008 raise of more than $17.8 billion.
But the Renaissance Capital data shows that the Detroit-based company's proposed offering would still be within the 25 largest IPOs in U.S. history should it reach the proposed $3.8 billion.
The sheer size of the proposed Rocket Companies IPO makes for something of a rarity, according to Ritter, the University of Florida finance professor.
"There aren't that many companies that go public with a market cap of $20, $30 or $40 billion," he said.
"It's not like Facebook in terms of visibility among people, but it's certainly a well-known, successful company that's been profitable. With any company, the stock might go up or down, but the probability that the company itself will fail is pretty minimal here. And I think that's one of the things that that has a lot of investors excited about it."
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Investors look ahead to Rocket Companies IPO, expected to price this week - Crain's Detroit Business
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