Redfin (RDFN) to acquire Bay Equity Loans Home Loans


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Redfin (www.redfin.com) (NASDAQ: RDFN) has entered into an agreement to acquire Bay Equity Home Loans (www.bayequityhomeloans.com), a national full-service mortgage lender. Under the merger agreement, the purchase price is estimated to be $ 135 million in cash and stock. Founded in 2007 in the San Francisco Bay Area, Bay Equity is an approved mortgage lender in 42 states and employs approximately 1,200 people. The acquisition accelerates Redfin’s strategy to become a one-stop shop for brokerage, loans and other services. Redfin expects the acquisition to be completed in the second quarter of 2022, pending customary approvals, and to be accretive to earnings per share 2022.

With nearly ten times the size of Redfin’s existing lending business, Bay Equity helps match Redfin’s national brokerage scale of about 2,400 agents, increasing the number of brokerage clients that Redfin can finance homes. Given its size, Bay Equity may be more efficient at producing loans and securing better terms when selling these loans to investors. These benefits will allow Redfin to generate more profit on each loan while keeping rates low. By using Bay Equity’s loan creation system, Redfin will be able to reduce its 2022 investment in loan software. Bay Equity has generated positive net income for each of the past three years.

“With Bay Equity’s geographic presence and its full product line, we will be able to immediately offer mortgages to a greater portion of Redfin’s homebuying clients, including jumbo loans and veteran loans.” and people with lower credit scores, “said Adam Wiener, president of real estate operations at Redfin.” Perhaps most important of all, Bay Equity shares Redfin’s commitment to customer service. Our customers and agents have worked with Bay Equity to fund hundreds of purchases and the customer ratings are excellent.

Once the transaction is completed, the Bay Equity management team will continue to operate under the Bay Equity name, creating mortgages for clients working with Redfin agents, clients working with other brokerage firms and clients. seeking to refinance.

“This is a great combination,” said Brett McGovern, CEO of Bay Equity. “Redfin is a technology leader and the alignment positions us both to thrive in a changing mortgage market. In addition to our established business volume, we will benefit from clients generated from real estate transactions in excess of $ 25 billion. of Redfin each year, and we’ll have the opportunity to introduce Bay Equity to Redfin’s more than 40 million monthly online visitors to make it easier for our clients to go from mortgage loan closing.

“For years, Redfin has talked about becoming a one stop shop for brokerage, mortgage, iBuying and securities services,” said Glenn Kelman, CEO of Redfin. “It’s more efficient to have one company that offers all of these services, which allows us to keep client loan costs low. But our long-term vision is to combine loan and brokerage services into new ways for people to move from home to home. Buying Bay Equity not only gives us the scale to better execute the first step of that vision; it also gives us the ability to start step two earlier, which will allow Redfin clients to purchase homes that they would not have been able to get through a broker or stand-alone lender.

Integration and reorganization plans

After the acquisition closes, all of Redfin Mortgage’s lending operations will be consolidated under Bay Equity. Certain Redfin Mortgage employees, including Redfin loan officers, will be transferred to Bay Equity.

Redfin also made the difficult decision to eliminate 121 positions from Redfin Mortgage, which represent less than two percent of Redfin’s total workforce, primarily in sales support, capital markets and operations. Redfin has already notified affected employees, who now have the option of finding alternate position at Redfin, particularly in our growing real estate, title and iBuying support organizations. Employees who cannot find or do not want new positions at Redfin will receive between 12 and 26 weeks of severance pay depending on seniority, as well as assistance in finding new opportunities outside the company. There are no plans to reduce Bay Equity staff.

“The reorganization of our mortgage operations unfortunately means that some colleagues and friends will be leaving Redfin,” said Adam Wiener, president of real estate operations at Redfin. “Many of these people are the pioneers who helped create Redfin Mortgage from scratch and we owe them a debt Our transition team will provide the white glove service our employees deserve as they transition to a new role at Redfin.” or a new business is done as smoothly as possible.

transaction details

Due to the downsizing associated with the acquisition, Redfin expects to incur a pre-tax charge for one-time severance pay, which consists of severance pay and related costs, of approximately $ 6-7 million. of dollars, as well as transaction advisory fees of approximately $ 3.5 million. In addition, Redfin expects to incur a non-cash impairment charge of approximately $ 2-3 million on mortgage-specific and in-house software. Even after adjusting for these impacts, Redfin expects the transaction to be accretive to 2022 earnings per share.

Pursuant to the merger agreement, the purchase price is estimated to be $ 135 million, which represents a premium of $ 72.5 million over the estimated tangible book value of Bay Equity as of December 31, 2021. The final purchase price will be determined by the same premium over the tangible book value at the closing date, subject to certain transaction-related adjustments. Two-thirds of the purchase price will be paid in cash and one-third will be paid in Redfin shares.

Key business indicators

Redfin mortgage

Bay’s own funds

Headquarter

Seattle, WA

Corte Madera, California

Employees (as of 12/31/21)

~ 250

~ 1,200

Total closed loans (2021)

2,644

25 338

Total origination volume (2021)

$ 985 million

$ 8.5 billion

Purchase origination volume (2021)

$ 982 million

$ 4.5 billion

# of authorized states

24

42

Some products

Compliant loans only

Full suite of products including VA, FHA and jumbo loans

Advisers

Keefe, Bruyette & Woods, A Stifel company, and Stifel serve as financial advisor to Redfin.

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