WeWork goes to market

Serviced office providers are moving fast to grab the initiative as they look to a more flexible future of work, after the pandemic.  

Sector leader IWG is busy signing up new corporate clients and has already agreed one European takeover deal. Meanwhile, sector newcomer WeWork is heading towards a listing, via reversal in the US into a special purpose acquisition company (SPAC).  

The SPAC move will allow WeWork to avoid the level of public examination previously delivered on it, when it tried an IPO in August 2019. Back then, a proposed USD47bn listing swiftly unravelled, as questions were asked about the company’s management, its lofty aspirations and valuation – and where profits were going to come from. 

The company was swiftly downvalued, its founder Adam Neumann was invited to leave, and its biggest investor SoftBank took control. Staff were laid off, growth aspirations modified – and then the company’s plans to move towards breakeven were derailed by the pandemic.  

The SPAC route will see WeWork reverse into BowX Acquisition Corp, headed by Vivek Ranadivé, who founded TIBCO Software in 1997, and today heads the Sacramento Kings basketball enterprise in California. Bow Capital, which is behind the SPAC, was founded in 2016 as an investor in earlystage tech companies.  

Following the departure of its ebullient founder, WeWork is now headed by Marcelo Claure as executive chairman, and Sandeep Mathrani as CEO. Claure is also listed as CEO and COO of Softbank Group, backers of WeWork. Mathrani, who joined the company in February 2020, is a US real estate veteran, having held senior positions at Forest City, GGP and Brookfield. He is also a board member at Host Hotels.  

The listing will value WeWork at USD9bn, and provide it with USD1.3bn of cash to help fund growth. BowX has USD483m of cash on deposit, while USD800m will come via a private placement of shares with backers including Insight Partners, Starwood Capital, Fidelity Management, Centaurus Capital, and BlackRock. 

WeWork has repositioned its offer, with All Access, Marketplace and Platform offerings alongside its core business. It is also now targeting larger clients, with its smaller SME customer base now a secondary consideration. 

Mathrani commented: “WeWork has spent the past year transforming the business and refocusing its core. WeWork has emerged as the global leader in flexible space with a value proposition that is stronger than ever.” 

Barry Sternlicht, Chairman and CEO of Starwood Capital Group said, “The commercial real estate industry has experienced a seismic shift and the future of work is now being redefined in real time. WeWork is the leader in flexible space, with a globally recognized brand.” 

Ranadivé said, “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.” 

IWG, which leads with the established Regus brand, believes that the new world of work, post-pandemic, will see many office workers moving to a hybrid model split between head office presence, working from home – and a new, local workspace hub.  

“People are moving to nice places to live because they know they can work from there,” said chairman Mark Dixon in a recent interview. “They think that there’s a future of not having to go to the office every day.” But IWG reckons that working from home is not the thing, and these newly flexible workers will instead seek out workplaces in the suburbs or provincial urban centres.  

The group recently signed Japanese giant NTT to another worldwide deal, giving its 300,000 staff access to all of IWG’s workspaces. The deal followed a similar arrangement signed with bank Standard Chartered, which has 95,000 staff globally.  

“One of the lasting legacies of the pandemic will be the ability to work in different ways, in different places and more companies will have distributed workforces empowering their teams to work closer to or from home,” said Dixon. “Employees have realised that they have been wasting an hour or two commuting to an office that they don’t need to be in, whilst businesses have realised that a hybrid model not only means happier and more engaged employees, but also a significant saving for the bottom line.” 

IWG is also looking for M&A opportunities, to fill out its global presence. It has already proved its assertion that the pandemic would present acquisition targets, during March 2021 acquiring the Copernicus brand in Italy along with its 14 sites. The addition doubles IWG’s Italian floorspace, takes it to 84 sites in the country and puts it in a leadership position there. Copernicus, which was started as recently as 2015, will remain a live brand in the country, IWG has said, with existing sites continuing to run under its Regus, Spaces and Signature brands.  

Of course, there are plenty of other players in the flexible workspace field, including office landlords wondering if they’ll ever lease their property wholesale again; and a few smaller niche players who have been able to ride out the covid-19 storm, and may be poised to launch into m&a to grow. With the debate on flexible workspace happening out loud, and in so many organisations, we may soon see other newcomers arriving onto the field.  

HA Perspective [by Chris Bown]: So are serviced offices a property play, an operational real estate play, or a tech play? WeWork’s leaders, while they have toned the rhetoric a bit, still seem to be drinking the same spiked Kool-aid as dear departed founder Neumann.  

Frankly, I’ve no idea what is the exciting new tech bit, about providing flexible workspace – we’ve already got smart phones, zippy laptops and everyone offers superfast wifi. I used WeWork for a while as a client, and was surprised by the total lack of community curation, or any other value-add activity – it was just Regus with uncomfortable chairs.  

And Starwood’s Sternlicht, from his comments, appears to think this is a real estate play.  

So, the question is, can WeWork still trade off the magic its founder sprinkled, persuading landlords of empty office blocks to partner up, and big companies to switch to flexible working in WeWork facilities? Or will it come a poor second to IWG, who has more flexible spaces in more places, has been around for two decades – and more importantly, turns a profit? Can new cool beat old school?  

Additional comment [by Andrew Sangster]: There are at least two major ways that the growth of flex office presents opportunities to hotel operators and hotel investors. The first is that of boosting demand for hotel accommodation as workers become based more remotely and head to an HQ on a regular basisneeding somewhere to stay overnight. The second is to become active as providers of some form of flex office solution. 

I see much more opportunity for the former and potential threats for the latter. As office providers gear up to accommodate a more nomadic breed of occupiers, they too will offer the sort of meeting space and f&b facilities that hoteliers provide. 

It is possible that office developers also build in an overnight accommodation element – such things exist already, albeit on a small scale. For companies like WeWork this is an obvious brand extension. 

WeWork says its model works because of a flywheel effect. The growth of the global community, attracting members and landlords, becomes self-perpetuating.  

The sales pitch is one of offering a “comprehensive real estate solution for less”. In addition, flexibility is key: space flexibility, from one desk to a custom office; time flexibility, from one hour to multiple years; portability of cost, taking a contract from one city to another. 

At the core of this is the subscription membership modelThe company has digitised the space-as-a-service offer, creating a platform. And this is where investors in WeWork believe the opportunity lies: the platform. 

Rivals like IWG certainly offer space-as-a-service, increasingly in a digitised format too, but they have not succeeded to the extent of WeWork of turning this into a platform. The high operating leverage and ability to grow with limited capital is a seductive offer that parallels OTAs. 

WeWork believes it will reach EBITDA breakeven by the end of this year (if it can hit around 70% physical occupancy). It is anticipating reaching a full recovery by 2023 by when it hits USD5bn of revenue and USD1bn of adjusted EBITDA. 

Even if WeWork hits its targets, the USD9bn valuation still looks punchy. It will need to add further growth opportunities. An obvious one is corporate accommodation, especially given the CEO’s non-exec role at Host Hotels. 

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