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Pulling pranks, bidding for Yahoo, and launching a $1 billion basketball stunt: Rocket founder Dan Gilbert and Warren Buffett are close friends with a colorful past
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| Warren Buffett & Dan Gilbert in Detroit |
Gilbert is close friends with Warren Buffett and has partnered with the investor and Berkshire Hathaway CEO several times over the years.
For example, Gilbert and Buffett pranked Quicken employees with a fake sale in 2014, Berkshire insured a $1 billion Quicken marketing stunt the same year, and Buffett agreed to finance a bid for Yahoo by Gilbert and other investors that ultimately failed.
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Rocket Companies' founder and chairman Dan Gilbert saw his net worth soar to $34 billion after the parent company of mortgage lender Quicken Loans went public on Thursday.
Gilbert — who is also the majority owner of the Cleveland Cavaliers basketball team and the founder and controlling shareholder of StockX, the online sneaker marketplace — now boasts a fortune roughly half the size of Warren Buffett's, according to the Bloomberg Billionaires Index.
The famed investor and Berkshire Hathaway CEO will likely be cheering Gilbert on, as the pair have been friends and occasional business partners for years.
"I'm an enormous admirer of Dan and what he has accomplished in Quicken Loans," Buffett told CNBC in May 2016.
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Rocket didn't immediately respond to a request for comment from Business Insider.
Pledges, prizes, and pranks
Gilbert and Buffett first met at a conference years ago, and became acquainted over lunch in Buffett's hometown of Omaha, according to Reuters.
In 2012, Gilbert signed the Giving Pledge, which Buffett launched with Bill and Melinda Gates to encourage the world's wealthiest people to give away at least half of their fortunes to philanthropic causes.
Gilbert roped in Buffett two years later, when Quicken's marketing team wanted to hold a competition with a $1 billion reward for any contestant who filled out a perfect bracket for the NCAA Division I men's basketball tournament.
No one succeeded, but Quicken paid Berkshire an estimated $10 million premium to insure the prize, according to Crain's Detroit Business.
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Gilbert also interviewed Buffett at an event called Detroit Homecoming in 2014. The pair revealed backstage that they pranked most of Quicken's management team on April Fools' Day that year: Gilbert falsely claimed that Berkshire had bought the company, and Buffett played along on a video call, Crain's Detroit Business reported.
"I go along with whatever he comes up with, and so far I haven't gone to jail," Buffett joked at the time.
Buffett also agreed to finance a group of investors including Gilbert when they tried to buy internet titan Yahoo in 2016, Reuters said. The consortium's bid ultimately failed.
There's no mention of Buffett beyond the basketball stunt in Rocket's initial public offering filing. However, in light of their tie-ups over the years, it would be no surprise if Gilbert name-checks him during future interviews and earnings calls.
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Rocket Companies IPO jumps 19.5%; company promises Detroit neighborhood investments
Shares of Rocket Companies Inc., the parent of billionaire Dan Gilbert's mortgage lending giant, closed up more than 19% on their first day of trading Thursday on the New York Stock Exchange.
An unspecified amount of the $1.8 billion the company is set to earn from its initial public offering will support initiatives in its hometown, such as increasing internet access in Detroit neighborhoods, CEO Jay Farner told The Detroit News.
The first public shares of Rocket, which includes Quicken Loans, ended trading up 19.5% to $21.51 on the exchange under the RKT symbol — a milestone for the Detroit company that was an early harbinger of the city's revitalization and recruiter for young tech talent. The firm is slated to become the seventh-largest IPO of 2020, according to Dealogic, with 100 million shares available at $18 each.
The price was lower than the original $20 to $22 range the company had suggested last week for the IPO. Despite the decrease, shares did reach a high of $22.70 around 2 p.m. and were in line with last year's 18% average first-day price rise.
"The purpose of this was not to raise capital," Farner said in an interview. "Whether it was $3.3 billion or $2 billion, the goal was to take the company public, which is an important step and gives us more flexibility into the future."
The stock's performance was a "Goldilocks stock-price bump," said Erik Gordon, a faculty member at the University of Michigan's Ross Business School.
It was "high enough to make money for investors who bought stock at the opening price and not so high as to make you think the company sold the stock for too little," he said.
The smaller IPO, Farner said, is expected to bring about a long-term investor base thinking three to five years in the future. Although Rocket is in the mortgage business, it is seeking to pitch itself as a tech disruptor in the industry by allowing homebuyers to apply for loans completely online.
The company represents about 9% of the highly fragmented mortgage industry, Farner said, but it hopes to grow it to 25% over the next decade. Rocket Companies closed $145 billion in loans in 2019 and recorded $893.4 million in profit on revenue of more than $5.1 billion.
Although COVID-19 had put a pause on IPO plans in the spring, low interest rates have spurred a frenzy of refinancing and homebuyer activity that contributed to record months in March, April and May, Farner said. Coupled with an upward trending market since March, the company decided now was the time to go public.
"I think the market is really recognizing or confirming that we have some pretty special technology that we can grow and scale and do so profitably," he said.
Going public should help Rocket reach its goal, Farner said, providing opportunities for greater name recognition and funds to improve its market share. It also provides for an employee stock option — something Gilbert has wanted to provide to the company's more than 20,000 employees, most of whom work downtown and many of whom are highly sought tech talent.
"It was challenging to do that in our previous structure," Farner said. "You see that a lot in Palo Alto, California. Here in Detroit, I think, it's less common. We're proud that we can offer our employees the opportunity to be owners of the business."
The funds will support the company's greater efforts in Detroit, as well, Farner said. A company spokesman declined to disclose how much of the offering would support those initiatives.
"We're selling only about 5% of the organization," Farner said. "We wanted to take that and be able to use it for some of the initiatives here in the city of Detroit, not just today, but though for example the Gilbert Family Foundation to provide even more capital to continue to help our city down the road."
The Gilbert Family Foundation has contributed to COVID-19 relief efforts in Detroit as well as supported efforts in education and blight removal. IPO funds also will support efforts around the Connect 313 Fund, an initiative to increase internet access in the city.
"Technology empowers us to get a loan, to buy a home or find a home, get a mortgage; it increases education," Farner said. "It's crazy 30% of people here don't really have that. We are working with others to solve that problem."
Gilbert will maintain a majority controlling stake in the company with 79% of shares under a multi-tiered system. He will have final say over major decisions such as the election of board directors, proposed mergers, or sale of the company's assets. Gilbert's net worth totals $7.5 billion, according to Forbes.
Gilbert founded the company in 1985. In 2010, he moved its headquarters from Livonia to downtown Detroit. He joined Farner and other executives in New York to ring the opening bell in New York. They wore face masks amid the pandemic.
“Rocket has spent the last 35 years becoming America’s largest mortgage lender by taking the road less traveled,” Gilbert said in a statement. “I have full confidence in Jay and the rest of the senior leaders to build on the blueprint that got the company to where it is today and find innovative ways to reach new clients in the future.”
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