US mortgage lender Better to go public after ‘arduous’ two years

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Better, the SoftBank-backed online lender whose chief executive made international headlines after firing 900 employees over Zoom, will make its public market debut this week in a long-delayed deal with a blank-cheque company.

Since May 2021 it has been attempting to cement a merger with a special purpose acquisition company. Interest in Spacs and demand for mortgages have faltered since the deal was announced, slowing its progress.

“The process of going public has been as arduous as the process of buying a home in America, perhaps more,” Vishal Garg, who founded Better in 2016, told the Financial Times. “It’s taken, instead of two months, two years.”

The transaction with Aurora Acquisition Corporation is backed by SoftBank, the Japanese conglomerate, and Icelandic billionaire Thor Björgólfsson. Better has said it expects to start trading on New York’s Nasdaq exchange on Thursday.

Better competes with companies such as Rocket Mortgage that have capitalised on the pullback by banks from mortgage lending because of regulations imposed after the 2008 financial crisis.

The company promises a quicker and cheaper mortgage approval process, in part by scrapping common industry practices such as commissions for loan officers.

Better’s business boomed as interest rates hit rock bottom in the pandemic, funding $58bn worth of loans in 2021, a 1,000 per cent increase from two years before. But loan volumes dropped to $11.4bn last year as the Federal Reserve aggressively lifted rates to fight inflation, damping demand from would-be homebuyers and owners seeking to refinance.

For Garg, the past two years have been marked by highs and lows. Negative publicity stemming from his mass firing of employees on Zoom in December 2021 was cited in the filing as a risk factor to Better’s business, as was an incident where he accused employees of “stealing” from their colleagues and the company’s customers.

“Over the past two years, I’ve spent a lot of time getting leadership training, learning to become a more empathetic leader,” Garg said. “Our foot-faults have made us stronger, and have actually enabled us to become more ready for being a public company.”

New York-based Better also faced an investigation by the US Securities and Exchange Commission into whether it had violated securities laws following allegations by its former head of sales and operations Sarah Pierce that the company misled investors in its pursuit of going public. Better denied the allegations and the SEC opted not to recommend an enforcement action, but the investigation slowed down the Spac transaction.

Better has also continued to bleed cash, with almost $1.2bn in reported losses for 2021 and 2022. It recently disclosed in regulatory filings that if the merger deal failed or it could not find other sources of funding it “may not be able to continue as an operating company”. It has laid off 91 per cent of its workforce over the past 18 months.

The New York-based company is merging with Aurora at the same enterprise value of nearly $7bn it agreed in 2021, despite being a fraction of the size it was at the time.

The deal will result in the Nasdaq listing and help Better raise a further $550mn by issuing convertible bonds to SoftBank that will mature in five years. Garg has personally guaranteed any losses the Japanese conglomerate may suffer if it chooses to sell the debt. Meeting the terms of the guarantee could force Garg to sell his Better shares and drive down the stock price, a filing warned.

SoftBank, a large tech investor, has already provided $750mn in financing to Better, and its Vision Fund 2 invested $500mn in April 2021.

Spacs raise money through a public listing and hunt for a private company to take public. The target company expects to receive the money, which is held in a trust account by the Spac, but as the asset class has fallen out of favour, investors have chosen to redeem their cash in large volumes.

Aurora held $282mn in its trust account as of December 2022 but more than 90 per cent of its shareholders opted to redeem their investments when they granted a six-month extension for the two companies to complete the deal, and just above $20mn remains.

Aurora’s sponsor NaMa Capital, formerly Novator Capital, is backed by Björgólfsson, a self-defined “deal junkie” with an “unusual tolerance for risk”. NaMa opted to redeem the majority of its private shares.

In 2022, Better recruited former Goldman Sachs partner Harit Talwar as non-executive chair to help steady the business and prepare for the stock market listing.

“The last 18 months has been a perfect storm between the macro environment of rising rates [and] the housing supply,” Talwar told the FT.

“We’re a disrupter in legacy-ridden industry. We’ve got a strong track record. We’ve demonstrated resilience in the face of headwinds, and we are trying to build a company which will survive and thrive across cycles.”

Asked about how Better would use the cash infusion from SoftBank and the Spac deal, Talwar said it would expand its offerings to customers but remain diligent about spending. “We are not going to be drunk sailors at all,” he added.