Mortgage Lender Better Announce Deal With SPAC

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Mortgage lender Better, a startup whose valuation rose sharply in private markets, said Tuesday it plans to go public through a merger with a specialized acquisition company.

Better Holdco Inc., which operates a digital platform for mortgages and related services, plans to merge with

Acquisition of Aurora Corp.

SPAC, sponsored by investment firm Novator Capital, said the companies. The deal, reported Monday by The Wall Street Journal, estimates Better at about $ 6.9 billion in new money, up from $ 4 billion late last year.

SoftBank Group Corp.

, which recently invested $ 500 million in Better as part of the deal-making sprint, may invest an additional $ 1.3 billion in so-called PIPE, or private equity investments, a common feature of SPAC mergers. (It would be better to place $ 400 million of that amount with other investors.) The remaining $ 200 million of the $ 1.5 billion PIPE is to come from Aurora, which is sponsored by Icelandic billionaire Thor Bjorgolfsson’s investment vehicle.

Better will raise approximately $ 800 million in new capital through the deal, with an additional approximately $ 950 million going to cash out existing shareholders. As part of the deal, customers who previously took out a mortgage from Better will be able to buy shares in the company through a direct share buy program. Better co-founder and CEO Vishal Garg did not sell the stock as part of the offer.

The push by city dwellers to buy large homes in the suburbs during the pandemic, as well as the surge in mortgage refinancing at historically low interest rates, have contributed to the nearly fivefold increase in Better’s loans last year to $ 24 billion. The company expects the new funds to help accelerate the transition to ancillary services, including home insurance and title insurance.

Was surge in activity on deals with SPACwho raise money in their initial public offering and then look for businesses to team up with as private companies look for a more rational route to public markets than a traditional IPO. However, there have been signs of slowing growth lately, as the Securities and Exchange Commission and other regulators signal that they plan to tighten their scrutiny over SPAC. A senior SEC official recently warned SPAC against misleading statements about their growth projections.

Founded in New York in 2014, Better provides mortgage loans to consumers through its website and partner banks such as

Ally Financial Inc.

The software developed by the company performs the tasks traditionally performed by commission-based mortgage brokers, but a matching engine. Better provides mortgage loans to over 30 major banks and institutional investors, allowing the company to minimize its risks. In 2020, Better generated $ 185 million in net profit on $ 876 million in revenue.

In a presentation to investors on Tuesday, Better predicted that its rapid growth will continue. The company predicts that it will generate $ 1 billion in annual profit on $ 5.1 billion in revenue by 2023. She also predicted that she would provide $ 57 billion in mortgages this year and $ 181 billion in 2023, which Better said would give her a market share of 5.6. %.

Better previously raised money from investors, including

Goldman Sachs Group Inc.,

Kleiner Perkins Caufield & Byers, Healthcare of Ontario Pension Plan and 9Yards Capital. The acquisition of SoftBank shares from existing investors earlier this year valued the company at approximately $ 6 billion.

Garg said one of the reasons he wanted SoftBank to become an investor was to make Better mortgages available to employees and clients of other companies in the Japanese tech giant’s portfolio. He added that the company decided to merge with SPAC because it provides better alignment of interests with investors than a traditional IPO.

In the past year, brisk home buying and refinancing activities pushed the mortgage market towards one of the best years ever… This sparked a wave of IPOs and deals in the sector with companies such as parent company Quicken Loans.

Rocket

Cos. become public and United Wholesale Mortgage decided to merge with a shell company

In recent months, the rise in mortgage rates has somewhat reduced the demand for loans and provoked price wars in the industry, dampening the profit margins of lenders.

Write to Maureen Farrell in maureen.farrell@wsj.com and Peter Ruedger at Peter.Rudegeair@wsj.com

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Published in print May 12, 2021 as Mortgage Startup, Better to Merge with SPAC.

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