Deal with BowX values flexible office space provider at $9 billion down from $47 billion
Flexible office space provider WeWork recently announced it will become a publicly traded company through a merger agreement with special purpose acquisition company (SPAC) BowX Acquisition Corp. The deal values WeWork at an initial enterprise value of approximately $9 billion. The transaction will also provide WeWork with approximately $1.3 billion of cash that it can use to fund its future growth plans. We work was previously valued at $47 billion when the original IPO blew up and Adam Neumann stepped away.
“WeWork has spent the past year transforming the business and refocusing its core, while simultaneously managing and innovating through a historic downturn,” WeWork CEO Sandeep Mathrani said in a statement. “As a result, WeWork has emerged as the global leader in flexible space with a value proposition that is stronger than ever. Having (BowX Chairman and co-CEO) Vivek (Ranadivé) and the BowX team will be invaluable to WeWork as we continue to define the future of work.”
Marcelo Claure and Mathrani will continue to lead WeWork as Executive Chairman and Chief Executive Officer, respectively, along with the rest of the company’s leadership team. Following the closing, Vivek Ranadivé of BowX and Deven Parekh of Insight Partners will join the company’s Board of Directors.
“I’m thrilled to partner with Sandeep, Marcelo and the entire WeWork team as they continue to transform this business and the real estate industry at large,” Ranadivé said in a statement. “This company is primed to achieve profitability in the short-term, but the added long-term opportunity for growth and innovation is what made WeWork a perfect fit for BowX. With a fantastic core business, I see WeWork as a company at an inflection point, with an incredible roster of key members coupled with the vision and leadership to digitize an enormous industry.”
WeWork finally takes its place on the stock market
WeWork’s deal with BowX ends the flexible office space provider’s nearly two-year quest to become a publicly traded company. WeWork attempted to go public through a traditional initial public offering (IPO), but the deal fell through in September 2019 as investors grew hesitant due to the company’s financial losses and the questions surrounding its corporate governance. Merging with a SPAC like BowX allows WeWork to bypass the roadblocks that come with an IPO launch. Meanwhile, investors, bankers and wealthy individuals like to invest in SPACs because they give the creators a chance to generate big profits fast.
“There have been doubts raised about its business model, and those doubts may be difficult to address in an IPO roadshow,” Michael Klausner, a Stanford business professor told The New York Times in reference to the presentations companies give to investors before an IPO. Klausner also noted that SPACs are “highly problematic” because their structure can lead buyers to overpay for them, which eventually hurts shareholders.
The WeWork-BowX merger might be different from the standard SPAC transaction, however. Many SPAC deals are made with companies that make technology solutions that don’t have much revenue, if any. People invest in these companies because of their potential. Despite its recent financial woes, WeWork is a known commodity that investors can evaluate. Its business model is clear—leasing office space and then subletting that space to its members, which comprise start up companies and large corporations.
“It’s now, more or less, a normal real estate company,” Jay Ritter, a finance professor at the University of Florida told The New York Times. “With real estate, and the short-term rental market — there’s a competitor that’s been out there for a long time and investors aren’t going to buy unrealistic projections.”
BowX, investors show confidence in co-working space industry
WeWork’s recent financial and membership issues might make one wonder if now was the time for BowX to enter this merger. The COVID-19 pandemic led to WeWork’s memberships falling to 476,000 in 2020 from 619,000 the year before. There’s also a question of how much demand there will be for office space going forward as more people have been working remotely, and might continue to do so after the pandemic.
These issues don’t seem to be of concern for Ranadivé and BowX, however. He believes if workers are going to return to any type of office, it will be the flexible space that WeWork provides. The executive said on CNBC last week that the pandemic would be a “tailwind” for WeWork, The New York Times reports.
“Companies have now decided that flex space is the must-have,” Ranadivé said. “Maybe for their own headquarters they want to own that space. But for everything else, they want to hand it over to a WeWork.”
“With COVID accelerating the adoption of flexible workspace around the globe, WeWork is uniquely positioned to meet rising demand in a dynamic market,” Insight Partners Managing Director Deven Parekh said in a statement. “As leaders in growth investing across technology and software, we are excited to bring our decades of experience to further accelerate WeWork’s expanding digital platform.”
In another turn of events CBRE has taken a 35% stake in Industrious showing that there is still a great deal of life in the flex space arena.
Joe Dyton can be reached at joed@fifthgenmedia.com.
