After a long wait, WeWork has announced that it will be going public by merging with a blank-cheque company. The flexible space provider will be merging with BowX Acquisition, a blank check firm known as a SPAC, in a deal that values the co-working company at an initial enterprise value of $9B.
The transaction is expected to close by the third quarter of 2021. With this transaction, WeWork will receive approximately $1.3B of cash, which will enable the company to fund its growth plans into the future. This is including a fully committed $800M private placement investment with key investors, including Insight Partners, funds managed by Starwood Capital Group, Fidelity Management & Research Company LLC, Centaurus Capital, and funds and accounts managed by BlackRock
WeWork to raise $1.9B
This is good news for the co-working company, which was under a lot of pressure before the pandemic. Upon closing, WeWork will have approx $1.9B of cash on the balance sheet and total liquidity of $2.4B (assuming no redemptions from the trust account by public investors of BowX), including a $550M senior secured notes facility to be provided by SoftBank Group.
Sandeep Mathrani, CEO of WeWork, says, “WeWork has spent the past year transforming the business and refocusing its core while simultaneously managing and innovating through a historic downturn. As a result, WeWork has emerged as the global leader in flexible space with a value proposition that is stronger than ever. Having Vivek and the BowX team will be invaluable to WeWork as we continue to define the future of work.”
About WeWork and BowX Acquisition Corp.
WeWork was founded in 2010 with an aim to create environments where people and companies come together and do their best work. Since opening its first location in New York City, the company has grown into a global flexible space provider committed to delivering technology driven flexible solutions, inspiring spaces, and community experiences. Currently, its space is helping everyone, from freelancers to Fortune 500s.
As for BowX Acquisition Corp., it is a Special Purpose Acquisition Company formed by management of Bow Capital, including Vivek Ranadivé, and Murray Rode. It is a venture capital fund that claims to bridge the best of academia, business, and entertainment.
Ranadivé has four decades of experience and is the founder and managing director of Bow Capital, as well as previous founder and CEO of TIBCO. And Rode is a senior advisor of Bow Capital and former CEO of TIBCO, with over 30 years of experience in tech.
Marcelo Claure, Executive Chairman of WeWork, says, “SoftBank has always seen the potential in WeWork’s core business to disrupt the commercial real estate industry and reimagine the workplace. Today, we take another step towards making that vision a reality. The pandemic has fundamentally changed the way we work, and WeWork is incredibly well-positioned to springboard into a future propelled by digital technology and a new appreciation of the value of flexible workspace. We look forward to having BowX as our partner as we look to the next chapter.”
Marcelo Claure and Sandeep Mathrani will continue to lead WeWork as Executive Chairman and Chief Executive Officer, respectively, along with the rest of the company’s experienced leadership team. Also, this development will see Vivek Ranadivé of BowX and Deven Parekh of Insight Partners join the company’s Board of Directors.
Had filed for IPO in 2019
Back in 2019, the company had already planned for an IPO. However, it was postponed after questions about corporate governance emerged. This led to the dismissal of controversial co-founder and CEO Adam Neumann.
Back then, the company was valued at $47B, and one of the most valuable unicorn startups in the world.
Despite all this, WeWork managed to make significant progress starting in the same year, 2019, by transforming its business through a strategic plan that included robust expense management efforts, exits of non-core businesses, and material portfolio optimisation, which contributed to an improved cost structure.
A new transformed WeWork
Last year, during the pandemic, the co-working improved its free cash flow by $1.6B through cost-cutting measures, including reducing SG&A expenses by $1.1B and trimming building operating expenses by $400M. Not only that, but it had also exited all of its non-core ventures and streamlined headcounts by 67 per cent in September 2019.
As of December 2020, WeWork has successfully exited 106 pre-open or underperforming locations and executed over 100 lease amendments for rent reductions, deferrals, or tenant improvement allowances resulting in an estimated $4B reduction in future lease payments.
After its strategic asset exits, the company retained its scale and value proposition worldwide from its 851 locations in 152 cities, totalling more than one million workstations. Enterprise companies now make up more than 50 per cent of WeWork’s memberships, up from just 10 per cent in 2015. Only 10 per cent of WeWork’s members have month-to-month commitments, while more than 50 per cent have commitments longer than 12 months, contributing to an average full commitment term of well over 15 months.
As witnessed through the COVID-19 pandemic, WeWork’s strong business model has demonstrated resilience in an unprecedented downturn. 2020 revenue, excluding China, was $3.2B, which is flat compared to 2019, even after exiting non-core businesses and despite significant headwinds from COVID-19.
Future growth and development
WeWork intends to expand beyond its core business through its On-Demand, All Access, and Platform offerings, to help users choose from their WeWork mobile app when, where, and how they work.
Currently, WeWork has a $4B total sales pipeline and an estimated $1.5B in committed 2021 revenue.