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Mortgage and banking technology provider Blend Labs Inc. has a new lease on life, with a $150 million investment from an Austin, Texas-based private equity firm that will allow it to pay off debt it took on when getting into the title insurance business in 2021.
In return for the cash injection, Haveli Investments is receiving preferred stock it can convert into Blend common stock at $3.25 per share. Haveli also has the right to purchase another 11 million shares in Blend anytime in the next two years for $4.50 per share, or $50 million.
Shares in Blend had closed at $2.25 Monday before the deal was announced, an indication that Haveli is optimistic that better times lie ahead for Blend.
Brian Sheth, Haveli’s founder and chief investment officer, will join Blend’s board of directors as part of the deal.
Brian Sheth
“We have known the Blend team for several years and have been impressed with their innovation and vision,” Sheth said in a statement. “With a blue-chip customer base and an improved balance sheet, we believe Blend is well positioned to succeed with its modern, next-gen platform.”
Shares in Blend, which in the past year have traded for as little as 53 cents and as much as $3.40, gained 9 percent Tuesday to close at $2.45.
Nima Ghamsari
“This investment represents a vote of confidence in Blend’s position for future growth and our ability to generate lasting shareholder value,” Blend CEO Nima Ghamsari said on a call with investment analysts. “Haveli is choosing to partner with us because of our track record of establishing an industry-leading position in mortgage, and successfully applying our playbook to other growth areas — notably deposit accounts, credit cards and the remaining components of the consumer banking business.”
Ghamsari said he has no doubt that Sheth — who as a co-founder of the legendary private equity firm Vista Equity Partners has been involved in more than $100 billion in deals and served as board chairman for dozens of companies — “will be a valuable adviser to us and keep us apprised of operational best practices.”
Bends in the road for Blend
Founded in 2012, Blend has built a software platform and marketplace that allow mortgage lenders and banks to service clients from application to close, helping process nearly $1.4 trillion in loan applications last year.
In 2021, Blend not only went public but acquired a 90 percent stake in national title insurance and settlement services provider Title365 from Mr. Cooper Group for $422 million — only to see rising mortgage rates suddenly curtail demand for its services.
After helping lenders handle 1.8 million mortgage transactions in 2021, Blend saw mortgage transaction volume plummet by 32 percent in 2022, to 1.234 million, and by another 35 percent in 2023, to 805,000.
Coming back from deep in the red
As what would eventually amount to a $763.8 million 2022 net loss started piling up, Blend began laying off employees and cutting costs.
Ultimately, the San Francisco-based lending tech provider would shed 1,400 workers, trimming its 2023 losses to $179.9 million and ending the year with 881 employees. All told, Blend has racked up a $1.34 billion accumulated deficit through Dec. 31, 2023.
To acquire Title365 in 2021, Blend took out a $225 million term loan and obtained access to $25 million in revolving credit.
According to its most recent annual report to investors, Blend ended 2023 with $138 million in debt, down from $217 million the year before.
Blend said Monday that it will use approximately $145 million of the proceeds from Haveli Investments to “repay all amounts payable under its existing credit agreement,” with the remainder earmarked “for general corporate purposes.”
Mortgage services are half of Blend’s business
Close to half of Blend’s 2023 revenue (49.5 percent) came from the services it provides to mortgage lenders, which amounted to $77.6 million last year.
But title insurance and closing services are the company’s second-biggest source of revenue, generating $47.3 million in billings, or 30 percent of revenue.
Blend offers a suite of title products and services, including “instant title” and other title search options, insurance solutions, closing and settlement services, mobile signing and e-sign capabilities, and post-closing solutions such as disbursement and recording handling.
(After racking up a $124.4 million 2023 loss, title tech provider Doma last month reached an agreement to go private through a merger with Dallas, Texas-based title insurance underwriter Title Resources Group.)
Consumer banking services accounted for $23.6 million in 2023 revenue, or 15 percent of the total, followed by $8.3 million in revenue from professional services.
In reporting 2023 earnings, Blend said it expects first quarter 2024 revenue of between $32.5 million and $35.5 million and a net operating loss of $12 million to $14 million.
Onboarding new clients
On the company’s fourth quarter earnings call, Ghamsari said Blend signed “two, multi-year eight-figure deals … which validates the trend that our large stable customer base has continued to expand their relationship with Blend across multiple products.”
Blend claims lenders using its suite of mortgage tools are shaving an average of 8 days off the time it takes to process and close loans, saving $914 per loan, on average.
Last month, Blend announced that it had signed Texas-based Randolph-Brooks Federal Credit Union — the 10th largest U.S. credit union, serving more than 1 million members through 62 branch locations — as a mortgage client.
“When we looked at all of our options, Blend was the best culture fit given their focus on member experience,” RBFCU executive Victor Williams said, in a statement. “We are thrilled to partner with Blend to further elevate our mortgage and home equity lending offerings. We believe this collaboration will not only enhance our operational efficiency but also enable us to better serve the evolving needs of our members.”
On April 14, Blend announced another new mortgage customer, Michigan Schools and Government Credit Union, which serves 145,000 members through 22 branch offices.
Blend is helping MSGCU automate its origination process with instant asset, income and employment verifications, and providing mobile capabilities enabling loan officers to issue pre-approvals, run credit checks, input pricing and automate underwriting on the go.
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