ValueAct takes a stake in rocket companies to enhance its market position

In recent months, ValueAct Capital has acquired a 9.99% stake in Rocket Companies, the top mortgage originator in the United States. This investment aims to leverage Rocket's innovative, technology-driven approach to mortgage processing, which stands in contrast to traditional methods that rely heavily on human participation. Despite Rocket's technological advantages, its share price has fallen over 29% since its IPO in August 2020 due to a small public float and complex share structures controlled largely by founder Dan Gilbert, who maintains over 80% of the voting power through preferred shares. As Rocket prepares to expand its public float from about 7% to 35%—boosted by pending acquisitions of Redfin and Mr. Cooper—this shift is anticipated to attract a wider range of institutional investors, potentially enhancing the company's market appeal. Declining interest rates are also expected to facilitate mortgage refinancing, further benefiting Rocket's position in the industry as it capitalizes on this favorable trend. Meanwhile, the company's early adoption of technology places it at the forefront of integrating artificial intelligence into its services. This position is not merely speculative as ValueAct has extensive experience in governance, having been involved with firms like Microsoft and Salesforce that are significant players in AI development. Over time, analysts believe ValueAct will exert influence on Rocket's board, leading to strategic decisions that could positively impact the company’s operations and shareholder value. Ultimately, this partnership could provide the momentum needed to simplify Rocket's capital structure and enhance its attractiveness to long-term investors, especially as the mortgage industry gradually consolidates in response to these technological advancements. The expectation is that as both ValueAct and Rocket grow closer, innovative changes will unfold that could play a pivotal role in reshaping the competitive landscape of the mortgage sector.