Digital mortgage lender Better.com’s SPAC deal with Aurora Acquisition Corp. recently got a new lease on life, extending its timeframe to close the transaction through the end of Q3 2023. Without the extension the transaction would have had to close by today.
Further investigation has turned up an interesting fact in the interim: Even if the Better.com SPAC combination closes, the transaction has been all but neutered from a cash perspective. From the company’s pursuant SEC filing (emphasis TechCrunch):
In connection with the vote to approve the Extension Proposal, the holders of 25,751,449 Class A ordinary shares properly exercised their right to redeem their shares for cash at a redemption price of $10.2178 per share, for an aggregate redemption amount of approximately $263,123,592. As such, approximately 92.6% of the Class A ordinary shares were redeemed and approximately 7.4% of the Class A ordinary shares remain outstanding. After the satisfaction of such redemptions, the balance in Aurora’s trust account will be approximately $20,931,627.
Per the company’s original deal presentation, its tie-up Aurora Acquisition would provide around $278 million to the combined company, which the deck noted “assumes Sponsor backstop of 100% of the shares redeemed by existing AURC shareholders pre-closing.”
As Better.com ran headfirst into a climate of higher interest rates and operational issues — its layoffs are now legendary for their callousness and blowback — it did manage to secure a portion of the other capital that was earmarked for the deal. That $750 million infusion, half of a planned $1.5 billion PIPE, or private investment into public equity, provided Better.com with a stronger balance sheet. That said, November 2021 is far in the past.
Now with it clear that even if Better.com manages to close its extended SPAC deal it won’t bring more cash, we’re curious about its balance sheet. Where does the company stand? We know that in the first quarter of 2022 alone, Better.com recorded a staggering net loss of $327.7 million. At the end of 2021, the company claimed to have an estimated $1 billion on its balance sheet. One source familiar with internal happenings at the company estimates that it had less than one-third of that amount by the fourth quarter of 2022.
That’s not a surprise considering that Better.com originated $10.3 billion in 2022 in loans, down an astounding 80% from 2021, according to Inside Mortgage Finance data cited by HousingWire. By contrast, loanDepot, a publicly traded player in the space, reported that its loan origination volume for the third quarter of 2022 alone was $9.8 billion. The company today has a market cap of $624.7 million. So if a company that in one quarter is originating nearly the amount of loans that Better.com did in an entire year is valued at $624.7 million, one can only assume that the latter would be worth even less.
While the drop-dead date to go public via a SPAC is Sept. 30, it will likely be apparent by summer whether Better.com will be able to move forward with the transaction. The source familiar with internal happenings at the company told TechCrunch that is probably when the “death spiral will begin.” With no incoming equity financing and likely no faith on the part of creditors, the source added, the company will most likely have to consider filing for bankruptcy by late 2023 or early 2024. CEO Vishal Garg told The Information that more layoffs and a down round might be in the company’s future, too.
It’s clear that with interest rates remaining high and refinancings way down, the fintech startup has had to get creative about diversifying its revenue streams — and gaining positive publicity. Just last week, it announced an agreement with Amazon in which it would help the retail giant offer its employees the ability to turn their vested equity into collateral toward a house. Even that announcement draws some skepticism.
Notably, in the announcement, only Better.com is quoted. When TechCrunch reached out to Amazon, a spokesperson only spoke generally about company benefits and did not address any specific relationship between the two companies. But multiple sources familiar with background on the news told TechCrunch that the agreement did not in fact represent a partnership between the two companies. Rather, Better apparently announced its new Equity Unlocker tool last week, and it rolled it out saying that it was initially exclusively available to Amazon employees. The news was framed to imply that there was some sort of partnership forged between the two, presumably to boost Better.com’s credibility.
The question now perhaps is not so much when will Better.com go public, but how long will it be able to survive?
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