Redfin Soars More Than 75% on Acquisition News -- Here's What Investors Need to Know

The stock market was having a generally negative day on Monday, with all the major market indices firmly in the red. But looking at Redfin's (NASDAQ: RDFN) stock price, you'd never know it. As of 10 a.m. ET, Redfin was up by a staggering 77% for the day.

The spike isn't fueled by earnings results or anything like that. Instead, Redfin is being acquired by lending giant Rocket Companies (NYSE: RKT).

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Details of the deal

Redfin is being acquired in an all-stock transaction. It values Redfin at $12.50 per share, but it's important to know that it's based on Rocket's share price at the time of the deal's announcement.

Redfin shareholders will get 0.7926 shares of Rocket for every share they own, so if you own 1,000 shares of Redfin, you'd get 792.6 shares of Rocket after the deal closes. Rocket is down by about 10% on the news of the acquisition, and the value of the deal will fluctuate along with its stock price.

Rocket issued a press release detailing the rationale behind the acquisition. The short version is that Rocket is already a leader in real estate lending and servicing, and the addition of Redfin's home-search platform will go a long way toward making it an all-in-one real estate ecosystem.

The deal is expected to provide some big strategic benefits, such as bringing the nearly 50 million monthly visitors Redfin sees into Rocket's platform. Rocket customers can be paired with Redfin agents, and Redfin agents' clients can be referred to Rocket for mortgage, title, and servicing.

Redfin has its own mortgage operation, but it's minuscule when compared with Rocket, which originated over $100 billion in loan volume in 2024.

What it means for investors

Arguably, Redfin's biggest downside is its balance-sheet situation. As of the latest quarter, it had $125 million in cash and equivalents and about $900 million in debt. (Before this deal, Redfin's entire market cap was about $750 million.) Meanwhile, Rocket has a healthier balance sheet and is a profitable business.

Since this is an all-stock transaction, Redfin shareholders need to ask themselves whether they want to become Rocket investors. If the answer is yes, no action is needed -- you'll see Rocket shares appear in your brokerage account after the transaction closes. If not, you can sell at any point before the deal closes, keeping in mind that Redfin's stock price will still fluctuate because it's tied to Rocket's valuation.

It's also worth noting that Zillow (NASDAQ: ZG)(NASDAQ: Z) was down by as much as 5% on Monday. The leading real estate search platform, Zillow has also been trying to build an all-in-one platform with lending services and more. The Redfin/Rocket deal could be seen as increased competitive pressure.

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Matt Frankel has positions in Redfin. The Motley Fool has positions in and recommends Zillow Group. The Motley Fool recommends Redfin and recommends the following options: short February 2025 $10 calls on Redfin. The Motley Fool has a disclosure policy.