WeWork is a $9 billion test of SPAC appetite

If at first you don’t succeed with an IPO, try again with a special purpose acquisition company. Having failed abysmally when trying to go public the traditional way in 2019, office-space provider WeWork Cos is reportedly in talks to merge with BowX Acquisition Corp and thereby join the stock market.
A SPAC transaction has obvious appeal. Merging with a $480 million cash shell and raising a separate pot of institutional money, known as a PIPE, would make WeWork less dependent on majority owner Softbank Group Corp for funding.
A deal might value WeWork at $9bn including debt, the Financial Times reported this week. That’s a long way from the $47 billion valuation Softbank once ascribed to the desk-rental business and more in line with British rival IWG Plc, which has a 3.6 billion-pound ($4.9 billion) market value. But with the SPAC market rapidly cooling, equity investors will still need some convincing.
While WeWork thought it had hit rock bottom when its initial public offering fell apart, the pandemic piled on the agony. Lockdowns turned city centers into ghost towns and occupancy at its densely packed coworking spaces plummeted. Because WeWork’s memberships are often cancellable at short notice, some clients opted to go without.
The company lost $3.2 billion last year, the FT reported. While those losses probably include heavy one-time restructuring costs, they would bring cumulative losses since inception to about $10 billion by my rough calculation.
It takes chutzpah to try your luck with investors so soon after being emphatically rebuffed by them. Those who need a recap on WeWork’s past extravagances and appalling corporate governance can tune into a Hulu documentary next month that unpicks the whole saga. Judging by the trailer it may test the idea that all publicity is good.
The better news is that Adam Neumann, the mumbo jumbo spouting founder, has been replaced as boss by the experienced Sandeep Mathrani, a former Brookfield Properties executive. Bond investors have shrugged off WeWork’s credit rating downgrade in October and are less worried that it could go bust. In the short term, the pandemic has forced WeWork to implement hygiene measures and cut fees. During a February investor call IWG compared the competitive environment in coworking to the “Wild West.” Another rival Knotel Inc filed for bankruptcy in January.
In theory, however, the post-pandemic period could spur demand for the type of flexible workspace WeWork offers. Companies are rethinking whether they really need a large headquarters and more staff may work from home for at least part of the week. To appeal to firms that employ these occasional commuters, WeWork has started offering a pay-as-you-go option.
Investors are excited suddenly about companies that stand to profit from the shift to hybrid working. IWG’s shares have more than trebled since a low last March and they’re priced at a giddy 350 times multiple of this year’s earnings
One thing IWG has going for it are its suburban locations, which can soak up homeworkers tired of staring at the same four walls but who don’t fancy a long commute.

—Bloomberg