After a failed IPO and the imminent implosion of its business in 2019, WeWork announced on Friday that it had agreed to a deal that would bring the beleaguered cooperating company public.
Instead of a traditional IPO, WeWork is merging with BowX Acquisition, a special purpose company that has become hugely popular in recent months.
BowX is backed by Bow Capital, an investment firm that has advised the National Basketball Association star Shaquille O’Neal.
WeWork rents office space and then effectively rents it to its members, including individuals, startups, and large corporations. The heady expansion was driven by SoftBank, the Japanese conglomerate that became WeWorks’ largest shareholder and bailed out the company in 2019 when it ran out of money.
WeWork said the deal with BowX resulted in an equity value of $ 7.9 billion, far less than the nearly $ 50 billion value its investors spent on the company in 2019. WeWork will receive $ 1.3 billion in cash from the deal, including $ 800 million from Insight Partners, Starwood Capital Group, BlackRock and other investors.
The pandemic has emptied WeWork’s offices and it is not clear how much demand there will be for office space in the future. Lots of people have become used to working from home, and some big employers like Target and Dropbox have announced that they will be giving up large chunks of their office space because they expect fewer employees to join them every day. Other companies such as the retailer REI have sold their headquarters together. WeWork announced on Friday that membership had dropped from 619,000 in 2019 to 476,000 last year.
Even so, BowX CEO Vivek Ranadivé told CNBC in an interview on Friday that the pandemic would be a “tailwind” for the office sharing company.
“Corporations have now decided that Flex Space is the must,” said Ranadivé, a technology entrepreneur who owns the Sacramento Kings basketball team. “Maybe they want to own this room for their own headquarters. But for everything else, they want to hand it over to a WeWork. “
WeWork said it has cut its costs since the failed public offer. The company expects an increase in sales in the coming years. It also offered an upbeat forecast of earnings before interest, taxes, depreciation, and amortization, an often flattering measure of cash flows, but didn’t say what earnings might be. In the past it has struggled to meet high projections. And it must try to attract tenants at a time when office markets in New York, London, San Francisco and other major cities are flooded with cheap sublet space.
“We looked at our plan, we saw what we did in 2020 – and we saw a path to profitability – and we thought it was a good time to raise additional liquidity,” said Sandeep Mathrani. WeWork CEO, told CNBC on Friday.
A company presentation released on Friday said WeWork lost $ 3.8 billion last year, roughly the same as it did in 2019. The 2020 loss included a write-off of intangible assets of $ 1.4 billion -Dollar. Last year, WeWork consumed $ 857 million in cash, up from $ 448 million in 2019.
The road to a deal was cleared last month when Adam Neumann, co-founder of WeWork, and SoftBank settled a lawsuit. WeWork canceled its IPO in 2019 after investors struggled against its losses and criticized its governance practices.
SoftBank sought to bring WeWork public through a special purpose vehicle (SPAC), a route to Wall Street that has become increasingly popular in recent months because it is faster than a traditional public offering. As of Wednesday in 2021, 295 SPACs had gone public, raised $ 93 billion and broken last year’s record in just a few months.
SoftBank invested billions of dollars in WeWork after Masayoshi Son, CEO of SoftBank, adopted Mr. Neumann’s ambitious vision of building schools and serviced apartments in addition to renting office space. In total, SoftBank has backed WeWork with nearly $ 16 billion, including company investments, loans, and payments to existing shareholders. After WeWork goes public, SoftBank can sell its stake or keep it in the hope that it will increase in value.
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