Shares of Better Home & Finance Holding collapsed during its debut on Nasdaq Thursday. The digital lender went public after merging with the special purpose acquisition company (SPAC) Aurora Acquisition Corp. the prior day.
Better’s class A common stock, listed under the ticker “BETR,” declined to $1.15 at the closing on Thursday. They were down 93.4% from the previous close of $17.45 when the SPAC was still trading on the stock exchange.
It took two years for Better to go public. According to Bloomberg News, the digital lender is among the 10 worst-performing companies that merged with SPACs this year.
Why did it perform so poorly on day one?
The deal with Aurora was announced in May 2021, when historically low-interest rates boosted a SPAC mania in the U.S. and created a refi boom for mortgage lenders like Better. At that time, the company was valued by its investors at $7.7 billion.
But Better’s debut came at a low point in the mortgage market, with mortgage rates at their highest levels in more than two decades and historically low levels of home sales. That puts heavy pressure on its business. In addition, the SPAC mania has dried up amid increasing regulation.
Since the deal announcement, Better’s employment count nosedived to 950 workers in June 2023 from 11,000 employees in 2020. Better dealt with the bad press after Vishal Garg, Better’s founder and CEO, laid off employees via Zoom in December 2020.
The company posted a loss of $89.9 million in the first quarter of 2023; a far cry from the $500 million in income it realized in 2020, when most mortgage lenders posted historic profits.
Still, Garg managed to keep SoftBank and Novator Capital committed to investing in the company. The deal with Aurora will unlock $565 million of fresh capital for an unprofitable business.
The capital infusion includes a $528 million convertible note from affiliates of SoftBank and additional common equity from funds affiliated with NaMa Capital (formerly Novator Capital).
According to SEC filings, on August 21, the parties agreed that SoftBank’s purchase of $650 million in Better’s convertible promissory notes would be reduced by any amount received from the trust account of Aurora at closing and any amount of the $100 million commitment by Novator. The agreement reduced SoftBank’s maximum commitment to $550 million.
In an interview with HousingWire, Garg said the company has shifted its strategy ahead of its IPO—Better plans to be a mortgage marketplace that sells its technology platform to other companies.
“Our overall model has changed from being a one-stop-shop, where we do everything in-house, to being a one-stop-shop where we do the things in-house that we’re the best at,” Garg said in an interview. “For things like homeowner’s insurance, title insurance, and realtors, we’ve now just become a marketplace. We match the consumer to the product with a partner capable of delivering the best product to them.”
Since 95% of Aurora shareholders redeemed their shares, there was a small amount of publicly available shares, which contributed to the volatility on Thursday, Reuters reported.