Friday brought the long-rumored news that WeWork is going public in a transaction that values the company at $9 billion. The deal is structured as a merger with BowX Acquisition, a special purpose acquisition company (SPAC).
Following the report in the Financial Times of WeWork’s plan to go public via a SPAC, one wag commented: “More money has been lost on this company than the GDP of small countries.”
Of course, the commenter is right. And many bankruptcy court opinions have noted Peter Coogan‘s sage warning that entity valuation is akin to a guess compounded by an estimate. But what matters now is the future, not the past. Savvy investors such as BlackRock, Fidelity and Starwood Capital are injecting $800 million in WeWork (along with an additional $483 million previously raised by BowX in its IPO) have obviously bought into projections showing a dramatic reversal of EBITDA from a negative 55 percent in 2022 to close to a positive 30 percent in 2024. They are clearly undaunted by the $3.2 billion loss suffered by WeWork last year.
My view from the office suite level is that these new WeWork investors may well be right. Hopefully in the next year the world will be back to semi-normal, and people can go to the office comfortably and safely.
As a result, WeWork is poised to benefit. It has effectively been through an out of court bankruptcy as over 100 of its leases were being renegotiated on more advantageous terms suitable to the current market and 106 loss-leading spaces abandoned. When paired with other cost-cutting measures which reduced over $1 billion in operating expenses and a revamped capital structure, that gives the company breathing space as the new post-pandemic economy takes shape.
While now is possibly the best time since the 1930’s to lock in long-term leases at favorable rents, many tenants are understandably reluctant to do so when their business plans are uncertain. For those companies, flexspace providers such as WeWork allow an alternative with a short-term commitment and the opportunity to experiment with hybrid work.
Moreover, the initial raison d’être for WeWork was to provide a place for individuals and small businesses to enjoy the benefits of a community setting as opposed to the isolation of working at home. Once the health crisis passes, that rationale will be reinvigorated. Moreover, businesses that are looking at the new concept of hotelling where they host meetings and gatherings of employees at relatively infrequent intervals may be attracted to WeWork.
WeWork is the best known and most popular of all the flexible space providers. With a right-sized cost structure, and deep-pocketed owners who are running the company like a real business and not a cult of personality without self-dealing insider transactions, the second time might just be a charm.
So that’s the way I see it. More importantly, what do our friends and clients think? Please let us know.
Be safe and well.