Better shares plunge more than 90% in Nasdaq debut

Publish Date: August 24, 2023

Written by Matt Carter

- Originally published at Inman News - Matt Carter

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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 note into Better Class A common stock a year from now if the company’s price per share is between $8 and $12 per share, or 30 days before they mature, Better disclosed.

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.

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