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Shares in technology-based direct mortgage lender Better lost more than 90 percent of their value in their Nasdaq debut Thursday, shaving more than $13 billion from the company’s market capitalization.
Better Home & Finance Holding Company — as Better is now known after completing a merger with a special purpose acquisition company (SPAC) on Wednesday — began trading on the Nasdaq stock market Thursday under the symbol “BETR.” Warrants giving owners the right to buy or sell shares at a future date are also trading on the Nasdaq Capital Market under the symbol “BETRW.”
Shares in Aurora Acquisition Corp. — the SPAC that Better merged with in order to go public — closed at $17.45 on Wednesday. Shares in the merged company, Better Home & Finance, were changing hands for as much as $23.80 before markets officially opened Thursday morning.
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Better’s Nasdaq debut
Shares in Better Home & Finance Holding Company lost more than 90 percent of their value when the company debuted on the Nasdaq stock market Thursday, Aug. 24. Source: Nasdaq.com
But at the opening bell, traders were valuing shares in Better Home & Finance at just $1.58, with the price per share dipping to as little as 77 cents before climbing back above $1. At Thursday’s closing price of $1.15 per share, Better’s market capitalization was roughly $922 million, compared to Aurora’s $14 billion valuation on Wednesday.
Neither Better or the company’s public relations firm had responded to Inman’s request for comment by press time.
But Barron’s reported that in addition to going public at a bad time for mortgage lenders, Better’s SPAC merger resulted in a huge increase in the number of shares outstanding, from 9 million shares to 802 million, diluting the value of each individual share.
Companies that go public through SPAC mergers can also be stung by early share redemptions, which occur when investors who buy shares in a special purpose acquisition company — in this case Aurora — sell their shares before a merger can be consummated, reducing the proceeds available to the company seeking to go public.
Better’s May 10, 2021, merger agreement with Aurora was amended six times over two years, most recently on June 23 before the deal closed on Wednesday, more than two years after it was announced.
By the time the deal finally closed, about 93 percent of Aurora’s shareholders had already redeemed their shares in advance, Barron’s reported, leaving Aurora with less than $21 million in a trust account. When Aurora shareholders voted to approve the merger on Aug. 11, 97 percent of the remaining shares in Aurora were held by management, Barron’s said.
Better co-founder and CEO Vishal Garg told Inman on Aug. 17 that early redemptions were no longer a concern, because closing the merger would bring in more than $500 million in fresh capital, including $528 million in convertible notes previously committed from affiliates of SoftBank.
In a regulatory filing Wednesday, Better disclosed that the notes carry an annual interest rate of 1 percent and mature on Aug. 15, 2028 — if they haven’t been converted into stock in Better. SoftBank can convert the notes into Better Class A common stock a year from now if the company’s price per share is between $8 and $12 per share, Better disclosed. Depending on how the shares perform, Better also has the right to redeem the notes on or before the 30th trading day prior to their maturity date for 115 percent of par value plus accrued interest in cash.
In a statement provided to Inman Friday, Garg said that when the SPAC deal was priced in 2021, “rates were at record lows. We believe that when interest rates normalize, our technology powered by Tinman will drive long-term growth and create shareholder value. With $560M in additional capital, we are one of the 5 most well-funded mortgage lenders in the industry.”
Better President and CFO Kevin Ryan took a similar tack in an interview with Yahoo Finance.
“Look, I don’t think we’re going to talk about [share] price or focus on price,” Ryan said Thursday. “We struck this deal in May of 2021. It was clearly a much better time in the mortgage market. It was a much better time for SPACs.”
It took Better “over two and a half years to close this deal from really start to finish, but we stuck with it,” Ryan said, ultimately raising $568 million “clearly at a 2021 valuation and the stock is way down today. We’re not surprised.”
Better’s boom and bust
Source: Aurora Acquisition Corp. regulatory filing
Last year’s rapid run-up in mortgage rates posed challenges for many mortgage lenders, who were forced to pivot from the highly profitable business of refinancing existing homeowners to competing for a shrinking market for homebuyers taking out purchase loans.
After originating $58 billion in mortgages in 2021, Better saw mortgage production plunge by 80 percent last year when interest rates soared to $11.4 billion.
Better began laying off employees at the end of 2021 and reworked the terms of the SPAC merger. Recordings of the online meeting in which Garg dismissed 900 employees just before Christmas went viral, but the layoffs were just getting started. Better ultimately shrank its workforce from a peak of 10,400 in 2021 to 950 team members as of June 8.
LoanDepot, which took a more traditional route to its 2021 IPO, racked up $610 million in losses last year and cut 6,100 jobs and has seen its market capitalization dwindle to $620 million as it continues to stem losses.
The nation’s biggest mortgage lender, United Wholesale Mortgage, went public in a 2020 SPAC merger and currently has a market capitalization of more than $17 billion. Rocket Companies, which also took a more traditional route to its 2020 initial public offering, is valued at more than $20 billion.
Editor’s note: This story has been updated with an estimate Better’s market capitalization based on Thursday’s closing price of $1.15 per share and to add comments from Better executives Vishal Garg and Kevin Ryan. The story has also been corrected to note that under certain conditions, Better has the right to redeem the convertible notes sold to SoftBank for 115 percent of par value plus accrued interest in cash.
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