What you need to know about WeWork pre SPAC

WeWork was a trailblazer of the start-up office space in the 2010s, but a failed IPO in 2019 brought the company down to earth. Now smaller and leaner, it seeks to go public again via a proposed SPAC.

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What is WeWork?

WeWork is a US-based commercial real estate company with a focus on providing flexible workspaces shared between companies, many of which are tech start-ups, but increasingly with a focus on larger, corporate customers. 

It began in 2008 when founders Adam Neumann and Miguel McKelvey discovered a niche for matching empty buildings caused by the economic crisis with the needs of freelancers and those starting companies.

After selling a business also in the co-working space, the pair quickly raised $15 million through a real estate developer in return for 33% of the enterprise. Assisted by ever-more substantial funding rounds from there, WeWork experienced a rapid rise in an era of accelerating potential for flexible working arrangements and collaborative, community-focused office tenancy.

However, in 2018 the company lost more than $2 billion and a planned IPO in 2019 was derailed by an inflated valuation and criticism over its business model, corporate governance, and lack of profitability. WeWork’s biggest investor Softbank took control, paid Neumann $1.7 billion to step down from the board, and the company subsequently laid off 2,400 employees in a move towards cost-cutting and a higher level of corporate responsibility.

As of the most recent 2020 figures, revenues are in excess of $1 billion, with around 480,000 global members using offices in some 30 countries. 

How does WeWork make money?

WeWork makes money by renting office space to companies of various sizes. It purchases real estate which commonly takes the form of single floors of commercial buildings and transforms them into smaller offices with communal areas.

Customers range from single occupants renting individual desks, to larger companies with hundreds of staff. Basic membership costs start from $45 per month, with desk renting $50 a day on top. For $350 a month, a user can have unlimited access to shared workspaces, according to 2020 prices.

Is WeWork profitable?

WeWork is not currently profitable. Following the disastrous 2018 period in which it lost $2 billion, 2019 was even worse with a reported loss of $3.5 billion. A similar loss came in 2020, despite fierce cost cutting (see below) and stoked by the plummeting demand for office space amid the coronavirus pandemic. Naturally question marks have arisen as to the future viability of the business in a world of uncertain demand for office rental.

One perception is that in its bid to put a lid on expenditure WeWork is more akin to a ‘normal real estate company’ than the disruptor it may have been before, and it may take more detailed plans for profitability than have been forthcoming thus far to convince investors with the new flotation.

Who are WeWork’s competitors?

WeWork’s competitors include traditional office rental giants such as Regus as well as entrepreneurial community hubs. While Regus has more global locations (3000 as of 2019 data), WeWork at some 800 locations is still larger than the likes of Spaces (400 locations), Knotel (200 locations) and Impact Hub (100 locations).

What is WeWork’s strategy?

WeWork’s strategy is notably different today than during the years of its rapid revenue growth, both due to a subdued market during lockdowns but also the requirement to reverse the effects of its extravagant former spending habits.

Now, a comprehensive cost-cutting strategy is the order of the day, with heavy staff cuts and a company culture switch from free-flowing beer and flashy branded merchandise to an atmosphere more akin to sensible corporate functionality. Throw in some aggressive lease renegotiations and the company looks significantly leaner, albeit duller, than when it was valued at some $47 billion before things went wrong in 2019.

The company is also looking to switch its client base from small start-ups towards larger, established companies in a bid for more stable, longer leases, although the company will have to balance that stability with maintaining some degree of the kind of flexibility for which it was originally celebrated.

Who are the directors of WeWork?

Neumann and McKelvey, as mentioned, started WeWork in 2010, although the former is no longer involved with the company since he was paid by Softbank to step down in 2019. WeWork has a number of key personnel that will help progress the company from this point and guide it through its SPAC IPO (see below). Here are a few of them.

Position

Name

Chief Executive Officer

Sandeep Mathrani

Chief Financial Officer

Benjamin Dunham

Chief Operating Officer

Shyam Gidumal

Chief Marketing Officer

Roger Solé

Director of Engineering

Herval Freire

Senior Manager, Product Operations

Florent Ferere

When is the WeWork SPAC?

The 2021 WeWork listing was proposed via the format of merging with an SPAC called BowX Acquisition. The development comes in the wake of an initial IPO attempt in 2019 that failed amid a vastly optimistic valuation, and the reduced but still vastly optimistic valuation that followed. Subsequent investor concerns over the governance of the company were followed by the Softbank takeover, Neumann’s stepping down and a great deal of cost cutting, as outlined above.

As part of the 2021 transaction, WeWork will receive $1.3 billion in cash to support its future growth plans, comprising $800 million from investors and some $483 million from BowX.

Anyone hoping to get involved in the flotation post-merger will need to take a position in BowX rather than WeWork. 

Take a look at some of the other top IPOs for 2021.

How much is WeWork worth?

BowX has valued WeWork at $9 billion after its debts, a far cry from the inflated figure of $47 billion that raised eyebrows when the company tried to IPO initially in 2019. Notable pre-money valuations for the company were $1.6 billion after its Series C round in 2013, $9.6 billion after its Series E in 2015 and $16.2 billion post Series F in 2016. 

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