Key Takeaways
- ValueAct Capital, an activist investment firm, has acquired a 9.99% stake in Rocket Companies.
- Despite being a top mortgage originator with efficient technology, Rocket’s stock has struggled due to its share structure and limited shares available to the public.
- Rocket is addressing these issues by simplifying its share classes and working to increase the public availability of its stock.
- ValueAct believes Rocket can significantly boost its performance and market leadership by further integrating artificial intelligence (AI).
- The activist firm has a history of successful investments in companies with controlled ownership and those benefiting from AI advancements.
Activist investor ValueAct Capital has recently taken a significant nearly 10% position in Rocket Companies, signaling a belief in the financial technology firm’s untapped potential.
Rocket Companies is a dominant force in the U.S. mortgage landscape, recognized as the nation’s largest originator. Its success stems from a technology-first approach that processes home loans more quickly and cost-effectively than many traditional competitors.
However, despite its operational strengths, Rocket’s stock has underperformed since its initial public offering in 2020. According to CNBC, factors like a small percentage of shares available for public trading, a historically complex share structure, and concentrated founder ownership have deterred some large institutional investors.
Positive changes are underway to address these concerns. Rocket aims to substantially increase its public float, the portion of shares available for public trading, from around 7% to 35%. The company is also simplifying its share structure from four classes down to two.
While founder Dan Gilbert will maintain majority control, ValueAct is comfortable with such arrangements, having a strong track record with controlled companies, including well-known names like Meta Platforms and Spotify. They often see opportunity where others might be hesitant.
Beyond these structural improvements, ValueAct points to artificial intelligence as a major future growth driver for Rocket. They believe AI can further enhance Rocket’s already efficient mortgage processing capabilities, extending its competitive edge.
As a company built on technology, Rocket is seen as ideally positioned to rapidly adopt and benefit from AI. This could lead to greater operational efficiency, increased profitability, and an even stronger market position compared to traditional lenders who may be slower to adapt.
With these strategic shifts, coupled with a relatively new CEO focused on technological advancement, Rocket has the potential to significantly grow its share of the mortgage market. The long-term view suggests the highly fragmented mortgage industry could consolidate around a few key players, with Rocket poised to be a leader.
ValueAct’s investment is not a speculative gamble on AI. The firm has considerable experience with AI, both through investments in AI developers and in companies successfully utilizing AI to transform their businesses. Their decision is rooted in a deep understanding of Rocket’s capacity to leverage technology for growth.
Although ValueAct’s current stake is modest for the size of their fund, their expertise in finance and AI could prove invaluable. As Rocket becomes more accessible to a broader investor base, ValueAct might increase its holding and potentially gain a board seat to help guide the company’s promising future.
