With the IPO and SPAC markets under pressure, no stock had yet been given the reception that online mortgage lender Better.com (BETR) received this week.
Shares of Better.com’s parent company, Better Home & Finance, fell more than 90% on Thursday after the company made its debut on the public market following a merger with Special Purpose Acquisition Company, Aurora Acquisition Corp.
Aurora stock closed at $17.44 on Aug. 23, the night before its merger with Better. By Thursday’s close, the stock was at $1.15. On Friday, the stock closed at $1.19.
Better’s road to becoming a public company was a long one.
Its IPO was delayed last year as the Securities and Exchange Commission conducted an investigation into whether Better had violated securities laws. In early August, the SEC said it did not intend to recommend an enforcement action against the company.
In 2021, Better drew headlines for its unceremonious firing of 900 employees via Zoom. CEO Vishal Garg told TechCrunch this week he’s gone through “a lot of leadership training” as he works to rebuild trust with the team.
“We struck this deal in May of 2021,” Better CFO Kevin Ryan told Yahoo Finance Live on Thursday. “It was clearly a much better time in the mortgage market. It was a much better time for SPACs.”
Asked about the company’s stock tanking in its first day of trading, Ryan said, “I don’t think we’re going to talk about price or focus on price.”
But for investors, the price was the story.
“Clearly a dud,” Yelena Dunaevsky, a corporate finance and securities attorney and SPAC insurance adviser who did not work on the Better.com deal, told Yahoo Finance on Friday. “This is an example of where a SPAC goes wrong. And we’ve seen definitely some examples of those lately.”
“These [companies] are getting shuffled through a downturn like this,” Dunaevsky added.
Other SPAC struggles
Better’s challenges are unique among companies that have gone public via SPAC in that it is grappling with both a poor market for these new listings and one of the most challenging mortgage environments in a generation.
On Thursday, the average 30-year mortgage rate surged to a 22-year-high of 7.23%. And Federal Reserve Chair Jerome Powell said Friday the central bank is “prepared to raise rates further” in an effort to bring inflation back down to the Fed’s 2% target.
And though the speed with which Better saw its stock fall 90% made waves in markets, this is far from the only company to go public via SPAC to see its stock lose this much, or more.
Other companies to go public via SPAC only to see their stocks tumble include WeWork (WE), EV maker Arrival (ARVL), and Virgin Galactic (SPCE). Shares of all three companies have lost more than 85% since going public. Both WeWork and Arrival are reportedly exploring bankruptcy.
In April, Virgin Orbit filed for Chapter 11. The satellite provider had gone public via a blank check company in 2021. That same month, medicine software maker Pear Therapeutics filed for bankruptcy after going public at a $1.6 billion valuation in 2021.
“When you have a completely different market environment from a rate environment…a lot of these companies that announced business combinations in 2021, their entire business models and growth drivers have been turned on their head compared to where they were in 2021,” Jon Browne, senior investment analyst for RiverNorth Capital Management, told Yahoo Finance.
“The market is demanding more cash flow positive businesses. More businesses that have realistic growth expectations or paths to profitability,” Browne added. “You’re seeing a complete valuation reset.”
“What we’re going to be seeing…this year and next year is a continuing attrition of these companies that really were not in the right place to execute a SPAC combination,” Dunaevsky said.
SPAC IPOs peaked in the first quarter of 2021, a time of market euphoria and near-zero interest rates, as 278 blank check vehicles came to the market. In the second quarter of 2023, only four SPACs went public, according to S&P Global data.
In the first half of this year, 100 deals — either mergers or takeovers — were announced by SPAC sponsors. In the first quarter of 2021, in contrast, 98 such deals were announced; by the first quarter of 2022, only 22 deals would come through.
“I just think there’s a general hesitation towards SPACs,” Bob Lamm, a SPAC adviser and securities lawyer, told Yahoo Finance.
In addition to a more challenging economic environment, tougher SEC rules and regulatory scrutiny contribute to making these “very tough deals,” he added.
“However, I think if there’s a quality company that really appreciates the seriousness of being publicly traded, the good deals would go through. But there’s very few of them right now.”
