WeWork’s merger with a special-purpose acquisition company, or SPAC, appears more tactical than most after a difficult couple of years.
It’s finally a public company, but its grueling and long-anticipated path to an IPO took some strategic turns ahead of the troubled co-working giant finally trading last Thursday.
Many questions were raised in 2019 over WeWork’s business model and co-founder and CEO Adam Neumann’s governance. Now it has secured financing from BowX Acquisition Corp, which for the most part shields the company from closer scrutiny, because financial results or assets don’t tend to be required in SPAC financial statements.
Many firms have taken a similar path to go public during the pandemic, particularly in travel and hospitality where a fast rebound is expected and bargains can be had, but WeWork for the most part stays out of the limelight in what’s poised to be a highly competitive and uncertain trading environment.
The new deal provides WeWork with proceeds of $1.3 billion, enabling it to fund its growth. This includes an $800 million private investment in public equity (or PIPE, which are deals that help underpin the financing of its business combination), with investors including Insight Partners, funds managed by Barry Sternlicht’s Starwood Capital Group, and funds and accounts managed by BlackRock — no strangers to hospitality.
“The commercial real estate industry has experienced a seismic shift and the future of work is now being redefined in real time,” said Sternlicht.
There is also a $150 million equity backstop facility provided by global real estate services firm Cushman & Wakefield, a financial arrangement that creates a secondary source of funds in case the primary source is insufficient. In August, Cushman & Wakefield entered into an exclusive strategic partnership with WeWork to market landlords and businesses WeWork’s management experience platform and “new jointly developed solutions.”
SoftBank, its main backer, also provided a $550 million senior secured note. The Japanese company reportedly invested a total of $18.5 billion in WeWork in the lead-up to its failed IPO.
Overall, the company is now valued at $9 billion, which is a fraction of the $47 billion estimate ahead of its failed IPO in 2019.
“The prior IPO process was probably a good thing because it forced the company to actually look at their business model and try to figure out how to make it profitable,” said one venture capital executive not associated with WeWork and who wished to remain anonymous. “That said, it is interesting they took the SPAC route this time which has much less scrutiny than the IPO process.”
A Safer Environment
Also on board is Vivek Ranadive, the former chairman and co-CEO of BowX Acquisition Corp, and founder of software company Tibco. He now becomes a board member of WeWork. CEO Sandeep Mathrani will continue to lead the company as it executes its strategic plan, WeWork said.
“Whatever Mathrani and the new leadership is doing seems definitely more transparent, reasonable and on-point,” said Martin Studencan, founder and CEO of offsite planning platform NextRetreat. “Less about ‘elevating the world’s consciousness.'”
However, in the two years since WeWork’s first try at going public, a lot has changed. Other listings have taken place, including Airbnb, which has made no secret of going after remote workers, while unintentionally the home-sharing platform’s bigger properties have turned into offices for some companies.
Membership clubs like Soho House also stand to see gains in the recovery with more people working remotely. Growing numbers of hotels are moving into the co-working sector too. Can the newly listed flexible workspace provider thrive in a more crowded marketplace?
Then there’s the cash burn. According to reports, WeWork lost $2.1 billion in the first quarter of 2021, which included a $500m non-cash settlement with ousted co-founder Neumann. Neumann is now backing Selina, which provides travelers with co-working spaces, accommodation and leisure activities.
“Today’s decision is the next step in our 2021 journey and the result of investor interest that arose from our disciplined efforts and performance over the past 16 months,” WeWork said in a recent U.S. Securities and Exchange Commission document. “We have worked hard to execute against our strategic plan and, even amidst the pandemic, have made great strides in doing so.”
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