Whilst exploring possible undercurrent trends between various market moves shared through my ThisWeekInCoworking.com newsletter, I had a thought about a possible move IWG plc could make, or be making.
I also dig into how they could and if they should, from my perspective as an outside observer.
Here’s what I’m thinking…
Disclosure
Note: This post only provides information and does not offer advice on financial or legal matters regarding any publicly listed companies. The opinions in this post belong to the author and not any financial or legal professionals. It is suggested to seek professional advice before investing or engaging in financial activities. The information in this post may not be accurate, complete, or reliable. Hector Kolonas is not liable for any damages or losses caused by relying on the information provided in this post.
Quick background: WeWork
WeWork went public via SPAC merger with a market cap of $9 billion. Annual revenue reported for last year was $3.2B.
At time of preparing this post, the market cap according to Yahoo Finance sits around $277.4M. Worth noting that other sites do list higher market caps of around $800M.
Now it should be said that the market cap is total value of outstanding shares multiplied by current or last closing price for a single share, it’s not necessarily the ‘book price’ or total value of the business.
To calculate the actual value of business the calculation is a little more complicated. It’s calculated by “subtracting non-monetary assets and liabilities or debts from a company’s total assets” (source).
WeWork’s recent restructuring of debt left them with $2.0B due, with $1.9B of that having a maturity date in 2027.
The business has closed many underperforming spaces, reduced costs significantly, explored more asset-light models but is still operating with quarterly losses in the hundreds of millions.
WeWork’s India JV did raise ~$66M in January 2023 after reporting a quarterly profit in week 19 of 2022.
Quick background: IWG
Public since 2000, with an annual revenue last year of £2.7B (~$3.4B) and operating profit of £147M (~$183M).
Earlier this year it was reported that the entity holding IWG’s digital properties that were merged with The Instant Group would be rebranded to Worka, AND that IWG (the majority stakeholder) was looking to offload a 50% share.
There were whispers that a buyout was explored for the digital group back in week 45 of 2022 at around a £1.5B ($1.87B) price tag.
The play: Offload digital, take WeWork private?
Should a 50% stake in Worka be doable at around a $500M price tag, IWG would theoretically have enough cash in hand to offer shareholders double their current market price.
Ofcourse there’s still Softbank with a 49% majority hold of WeWork, but given their current situation and the recent shifting in executives, could they see this as a way out of their deep investment?
Why?!
With WeWork shares on a downward trajectory, a possible delisting from the NYSE or even the looming 2027 debt maturity, why would IWG want to make such a play now?
💪 It’s a power move, positioning IWG even more as the largest global group of flex workspace brands.
✍️ IWG is in the franchise-business, and there’s some oomph left in the WeWork brand with regards to their core clientele.
🤝 Well-performing WeWork locations could be sold to franchisors, and the rest closed or restructured.
💰 The costs of competing with WeWork for corporate, multi-location and SMB contracts disappears overnight.
Caveats and objections
A few things worth noting:
💳 IWG aren’t the only flex brand who could come up with $500M+ to attempt to take WeWork private before it’s delisted. Other competitors like Industrious, The Flexi Group, or UFG’s CoWorks (to name a few) could raise the cash needed and make the same move.
🤔 It may be faster, and cheaper to takeover any shuttered WeWork locations, especially with office landlords looking at a potential banking/credit crisis flying towards them.
😮 Markets could be wrong and WeWork shifts towards profitability under the next leadership, much like the WeWork India did in one of the most competitive coworking markets on the planet.
Thoughts?
If you’re new here, I’m not a market analyst, nor do I run a fund in CRE or proptech (yet?), so I’m just sharing an interesting pattern I’ve noticed from moves I shared via my industry newsletter.
Think I may be onto something? Let me know in the comments below or via email.
Think I’m way way off base? Let me have it! I’m eager to learn about where I may have blind spots or missing some of the story.