WeWork To Go Public At $9B Valuation In Starwood-Backed SPAC Deal
Coworking company WeWork announced Friday that it is finally expected to become a public company in a Starwood Capital-backed special-purpose acquisition company deal that will see it initially valued at about $9B.
WeWork said it would merge with BowX Acquisition Corp., a SPAC founded by the owner of the NBA's Sacramento Kings, Vivek Ranadivé. BowX and a group of other investors, including Starwood, Insight Partners, Fidelity, Centaurus Capital and BlackRock intend to buy a total stake of 17% in WeWork for about $1.3B, valuing the company as a whole at about $9B, including debt.
The transaction is slated to complete in the third quarter, when shares in WeWork will begin trading.
The deal is a milestone for WeWork. The company's attempt to go public in September 2019 backfired when investors balked at a high valuation and corporate governance issues. The episode ultimately led to the exit of co-founder and CEO Adam Neumann.
During the IPO process, SoftBank, which remains the company's majority owner, valued WeWork at $47B. Today’s deal is far below that level, but is above the level to which SoftBank wrote down the value of the company in early 2020 — $3B — and sees WeWork achieve its long-held aim of a public listing.
Financials for WeWork released alongside the news indicate the company expects to just about achieve its target of being profitable by the end of 2021 — it expects to make a 1% margin in the fourth quarter of the year.
That said, it will take a loss for the full year. It is projecting an adjusted earnings before interest, tax, depreciation and amortization loss of $900M in 2021, excluding its Chinese business, from revenue of $3.2B. That is up from an adjusted EBITDA loss of $1.8B in 2020, when revenue was also $3.2B. It pointed to the maintenance of revenue during 2020 (2019 revenue was also $3.2B) as a sign of the resiliency of its business in spite of the coronavirus pandemic. It revealed that its buildings were 46% occupied in 2020, with physical memberships dropping from 619,000 to 476,000.
It is projecting that it will produce EBITDA of $500M in 2022, from revenue of $4.8B, and it expects to produce adjusted EBITDA of $2B by 2024. It said that for 2021 it had a total sales pipeline of $4B and committed revenue of $1.5B.
The listed company will be led by Sandeep Mathrani, the former Brookfield and GGP executive brought in as CEO following Neumann’s departure, and Marcelo Claure, the SoftBank CEO who will continue as executive chairman.
Following his appointment, Mathrani embarked on a cost-cutting exercise that involved exiting or restructuring leases and cutting headcount, a process that only became more essential with the arrival of the pandemic.
The company said that in 2020 it exited 106 pre-open or underperforming locations and executed more than 100 lease amendments for rent reductions, deferrals or tenant improvement allowances, resulting in an estimated $4B reduction in future lease payments. Headcount was cut by 67% from its September 2019 peak.
That portfolio restructuring leaves it with a little more than 1 million workstations in 851 buildings in 152 cities around the world. It said that 50% of its 476,000 memberships were to “enterprise members,” companies with more than 500 staff, a proportion it wants to grow to 65%. The company said it wanted to go beyond its core business of leasing defined desks to companies or individuals by expanding use of its on-demand service, where members can use an app to decide where they work from.
The financial presentation showed that WeWork’s average lease length is 15 months, and it said only 10% of its members had month-to-month contracts.
