It has been a wild stretch for those investors brave enough to trade low-float, blank-check firms and the companies that have merged with them.
(Bloomberg) — It has been a wild stretch for those investors brave enough to trade low-float, blank-check firms and the companies that have merged with them.
Better Home & Finance Holding Co.’s flummoxing 93% plunge during its Thursday debut highlights how risky it is to flip speculative companies that only have a tiny pool of shares available for trading, even as bets on another such firm, VinFast Auto Ltd., appears to have paid off this week.
Only a fraction of Better shares were available for trading after a vast majority of investors opted to cash in their investments before the SPAC tie-up was completed, SPAC Research data analyzed by Bloomberg shows. This drove declines on Thursday from the $17.44 price that Aurora Acquisition Corp., the special purpose acquisition company that Better merged with, closed at the day before.
The highly anticipated debut of Better comes more than two years after a May 2021 merger pact with Aurora which valued the company at more than $6 billion, back when blank-check mania was holding near its peak and investors happily paid up for a piece of the action. Now, Better joins the nearly 150 de-SPACS — firms that complete deals with blank-check companies — to erase more than 85% of their value.
When the SPAC was still trading under the ticker “AURC,” investors flipped the tiny-float stock to push it as high as $62.91, a 529% increase from the $10 value the company went public at in March 2021. The mania surrounding investors looking to dip in and out of low-float stocks has been a trend since the SPAC bubble burst, most recently driving VinFast to a valuation that makes it larger on paper than the likes of Goldman Sachs Group Inc.
While Better’s deal brought in a small amount of cash from the SPAC investors, the company issued and sold senior subordinated convertible notes worth roughly $528 million to SoftBank, a regulatory filing shows.
The merger also faced an inquiry from US regulators that focused in part on founder and Chief Executive Officer Vishal Garg. However, the companies said in a filing this month that Securities and Exchange Commission staff concluded the investigation without an enforcement action.
Garg, who currently serves as the company’s chief executive, had taken leave in late 2021 after mass firing Better workers over Zoom, a move that created an uproar and led him to issue an apology.
Better is now among the 10 worst performing companies that merged with blank checks this year, according to data compiled by Bloomberg News. The once-hot industry has dried up amid a crackdown by regulators and as a glut of sponsors shut down and return cash to investors.
Better offers mortgage, real estate and homeowners’ insurance products online, and eliminates origination fees and commissions.
(Updates share movement throughout.)
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