United Wholesale Mortgage is to go public via a merger with a blank-cheque company that values the mortgage lender at $16bn, in the largest such deal to date.

Gores Holdings IV, the fourth special purpose acquisition company (Spac) backed by Los Angeles billionaire Alec Gores, will merge with United Wholesale Mortgage after raising $425m in January. 

United Wholesale Mortgage is among the largest non-bank mortgage lenders, with 3 per cent of the total US mortgage market, according to the Mortgage Bankers Association.

The company works with independent brokers to underwrite and service loans for residential mortgages.

The deal shows how Spacs, which have experienced a resurgence in popularity this year, are competing for bigger deals. Gores Holdings will take a small percentage of the Michigan-based lender while its owners will retain 94 per cent of the company. 

In addition to the $425m held by the Spac, United Wholesale Mortgage will also receive $500m from a private placement led by Mr Gores, which includes other institutional investors. 

Blank-cheque companies raise money by listing on the stock exchange. While shareholders do not know which company the Spac will target, they are allowed to vote on the deal once it is announced. For investors, it is an effective wager on the acumen of the sponsoring dealmakers. 

The Spac boom has attracted familiar Wall Street names such as hedge fund billionaire Bill Ackman and Citigroup dealmaker Michael Klein, as well as former House speaker Paul Ryan and sports executive Billy Beane. 

Spacs are pitched as an alternative to the traditional initial public offering process by creating a fast-track route to public markets. Recently, however, questions have been raised about how effectively Spacs conduct their due diligence after Nikola, the electric truck company that went public via a Spac merger in June, was accused of fraud by shortseller Hindenburg Research.

Mr Gores founded private equity firm The Gores Group and has so far raised more than $2bn through five Spacs. He has had mixed results with his acquisitions so far.

His first blank-cheque vehicle, Gores Holdings I, merged with Hostess Brands four years ago. It is the only one of three companies that have listed via a Gores Spac that is at present trading above $10, which is the price at which investors typically buy Spac shares.

Source: Financial Times

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