With the IPO and SPAC markets under pressure, no stock had yet received the reception that online mortgage lender Better.com (BETR) received this week.
Shares in Better.com’s parent company, Better Home & Finance, fell more than 90% on Thursday after the company made its public market debut 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. At the close on Thursday, the stock was trading at $1.15. On Friday, the stock closed at $1.19.
The road from Better to a public company was a long one.
The 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 had no intention of recommending any enforcement action against the company.
In 2021, Better made headlines for summarily laying off 900 employees via Zoom. CEO Vishal Garg told TechCrunch this week that he undertook “a lot of leadership training” to restore trust within the team.
“We closed this deal in May 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.”
When asked about the company’s stock decline on the first day of trading, Ryan replied, “I don’t think we’re going to be talking about price or focusing on price.”
But for investors, price was key.
“Clearly an idiot,” Yelena Dunaevsky, a corporate finance and securities attorney and SPAC insurance advisor who was not involved in the Better.com deal, told Yahoo Finance on Friday. “This is an example of where a SPAC goes wrong. And we’ve definitely seen some examples of that lately.”
“This [companies] are tormented by a downturn like this,” added Dunaevsky.
Other SPAC fights
Better’s challenges are unique among companies that have gone public through SPAC, as the company has grappled with both a weak market for these new listings and one of the toughest mortgage environments in a generation.
The story goes on
On Thursday, the average 30-year mortgage rate rose to a 22-year high of 7.23%. And Federal Reserve Chairman Jerome Powell said Friday the central bank is “ready to raise rates further” to bring inflation back to the Fed’s 2 percent target.
Read more: What the Fed’s latest rate hike plan means for bank accounts, CDs, loans and credit cards
And while the speed at which Better’s stock fell 90% caused a stir in the markets, it’s far from the only company to go public through SPAC and see its shares fall as much or more.
Other companies that went public through SPAC and whose shares then plummeted include WeWork (WE), electric vehicle maker Arrival (ARVL) and Virgin Galactic (SPCE). Shares of all three companies are down more than 85% since going public. Both WeWork and Arrival are reportedly considering bankruptcy.
In April, Virgin Orbit filed for Chapter 11. The satellite provider had gone public in 2021 via a blank check company. That same month, medical software maker Pear Therapeutics filed for bankruptcy after going public in 2021 at a valuation of $1.6 billion.
“When you have a completely different market environment than a tariff environment … many of these companies that have announced business combinations in 2021 have flipped their entire business models and growth drivers from where they were in 2021.” Jon Browne, senior investment analyst at RiverNorth Capital Management, told Yahoo Finance.
“The market is asking for more cash flow positive companies. More companies that have realistic growth expectations or paths to profitability,” Browne added. “You will see a complete reassessment of the rating.”
“What we’re going to see this year and next is a continued churn of these companies that really weren’t in the right place to do a SPAC merger,” Dunaevsky said.
The Virgin Orbit building is seen after the company suspended operations last week, in Long Beach, California, U.S. March 22, 2023. REUTERS/Mike Blake
SPAC IPOs peaked in the first quarter of 2021, a period of market euphoria and near-zero interest rates, when 278 blank check vehicles floated. According to data from S&P Global, only four SPACs went public in the second quarter of 2023.
In the first half of this year, 100 deals – either mergers or acquisitions – were announced by SPAC sponsors. In the first quarter of 2021, on the other hand, 98 such deals were announced; Only 22 deals would materialize by the first quarter of 2022.
“I just think there’s a general reluctance to engage in SPACs,” Bob Lamm, SPAC advisor and securities attorney, told Yahoo Finance.
In addition to a tougher economic environment, tighter SEC rules and regulatory scrutiny are helping these “very difficult deals” close, he added.
“However, I think the good deals would happen if there was a quality company that really appreciated the seriousness of a public listing. But there are very few of those at the moment.”
Ines is Senior Economic Reporter for Yahoo Finance. Follow her on Twitter at @ines_ferre
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