The special purpose acquisition company market isn’t dead yet, apparently. SoftBank Group-backed digital lender Better.com plans to make its public debut in the fourth quarter of 2021 via SPAC, in a deal that would value the company at nearly $8 billion, the firm said Tuesday.
Better.com, which offers mortgage, real estate, title and homeowner insurance through its digital platform, has entered an agreement to merge with Aurora Acquisitions Corp., a blank check company sponsored by Novator Capital. As part of the deal, a SoftBank subsidiary will commit to a $1.5 billion investment into the combined company. Novator would also invest $200 million into the merged company.
“This transaction is the beginning of an amazing new chapter in Better’s history,” said CEO Vishal Garg. “This transaction provides investment capital to accelerate Better’s growth and support our mission to make homeownership simpler, faster, more affordable and more accessible for all Americans, and eventually everyone else.”
Better.com, founded in 2016 by Garg, a serial entrepreneur, would have a post-equity value of $7.7 billion following the merger, the company claimed. That would make it one of America’s most highly valued nonbank mortgage companies (just behind Rocket Mortgage and United Wholesale Mortgage), even if the lender’s production currently lags behind its legacy competitors and is heavily dependent on refi business.
There’s no doubt that Better.com has grown at a phenomenal rate since its founding. The company generated $24.2 billion in mortgage originations in 2020. It claims the platform also placed $7.7 billion in title insurance and $1.4 billion in homeowners insurance. The company generated about $850 million in 2020 revenue and about $250 million in profits, according to the Wall Street Journal, which first reported on the SPAC deal. Better.com originated roughly $14 billion in the first quarter of 2021, the Journal reported.
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Unlike many legacy lenders that have integrated tech in fits and starts, Better.com was built at the onset to be entirely digital. Its workforce of loan originators is entirely in-house and does not work on commission. Better.com said its labor cost was 57% lower than the industry average and its LOs close 16.2 loans per months, compared to the industry average of 7.1 per month. The firm is currently licensed in 47 states and Washington, D.C.
But there have been real questions about the company culture following a brutal Forbes report on bullying. Beyond that, it’s unclear if Better.com can thrive in a higher rate environment, when refi business falls and lenders typically rely on a human network of distributed retail loan officers or mortgage brokers to generate purchase business. Also unclear is how investors take to another mortgage company going public.
The only other major mortgage lender to go public via a SPAC has not quite been embraced by investors. UWM’s stock was trading at $6.30 a share on Tuesday morning, well below the $10 mark at the time of the merger with Gores Holdings IV.
Better.com, which was last valued at $6 billion, previously raised money from investors including Goldman Sachs, Kleiner Perkins Caufield & Byers and Healthcare of Ontario Pension Plan. It also has partnerships with American Express, Ally Financial and Progressive Insurance.