WeWork is in talks to combine with a dedicated acquisition company, according to people familiar with the matter, into a deal that would take the office rental company to public markets for more than a year after failing to complete a traditional IPO. .
WeWork’s board of directors and its Chief Executive Sandeep Mathrani have weighed up the offers from a SPAC affiliated with Bow Capital Management LLC and at least one other unidentified acquisition asset for several weeks, the people said. A deal could value WeWork at about $ 10 billion, some of the people said. It could not be determined whether this includes debt.
The company has also received separate offers for a new round of private investment, and it may choose that path instead, one said. If it did, WeWork would stay private and use the money to support its growth initiatives.
The talks are complicated and there is no guarantee that WeWork will close a deal, people warned.
“Over the past year, WeWork has remained focused on executing our plans for profitability,” said Lauren Fritts, WeWork’s Chief Communication Officer. “Our significant progress, coupled with increased market demand for flexible space, is showing positive signs for our business. We will continue to explore options that will help us move closer to our goals. “
Private companies are transitioning to special purpose acquisition companies, or SPACs, to bypass the traditional IPO process and get a public listing. WSJ explains why some critics say investing in these so-called blank check companies is not worth the risk. Illustration: Zoë Soriano / WSJ
WeWork is a major player in the flexible office space market. It signs long-term leases with landlords and then, after renovating and furnishing a space, rents out small offices or even entire buildings to tenants for just a month at a time.
Should WeWork make its public debut via a SPAC, it would be a long and bumpy road to an ad. WeWork’s 2019 attempt to tap public markets backfired when investors rejected the money-losing company and its visionary but erratic leader, Adam Neumann, who subsequently stepped down as chairman and CEO.
It would also be one of the brightest markers in a craze around SPACs, or blank check companies as they are also called. SPACs go public as empty vehicles with no company, then start looking for one to hold onto. The transaction turns the target in a publicly traded company into a deal that can be less time consuming and cumbersome than a traditional IPO.
This year alone, more than 80 new SPACs have hit the market, nearly five per business day, according to data provider SPAC Research.
Bow Capital Management is led by Vivek Ranadivé, owner of the NBA’s Sacramento Kings and founder of Tibco Software Inc. The SPAC raised $ 420 million last year. The company names basketball great Shaquille O’Neal as a consultant.
Mr. Mathrani has been in his tenure as CEO of WeWork for nearly a year, a time when he faced not only a company that was making money bleeding, but also a pandemic that forced people to stay away from offices.
While the commercial office space market was ravaged by the virus, WeWork had plenty of money thanks to a rescue financing at the end of 2019 from SoftBank Group Corp.
At the start of the pandemic, WeWork had already begun closing numerous locations, renegotiating leases and selling off non-core businesses, cutting thousands of jobs to cut costs.
The company was not looking for capital and does not need immediate money, some of the people said. WeWork, which was at risk of running out of money when the IPO collapsed, had more than $ 3 billion in its balance sheet as of the third quarter, when it reported the latest results. Mr. Mathrani has said that WeWork is expected to become profitable by the end of 2021.
WeWork had negative free cash flow of $ 517 million in the third quarter on $ 811 million in revenue, 8% less than the second quarter.
SoftBank has a majority stake in WeWork and the future role of the Japanese technology conglomerate will be a key factor in negotiations with potential merger partners or new investors.
A valuation of $ 10 billion would be a long way from WeWork’s peak valuation in early 2019, when a SoftBank funding round set it at $ 47 billion.
SoftBank and other investors were drawn to WeWork’s rapid growth – doubling its revenues every year. But that growth was fueled by extraordinary spending levels, resulting in an equally rapid increase in losses. After the failed IPO, WeWork has the grand vision of Mr. Neumann scaled back to provide a slew of 21st century services around the world.
When shares plummeted last spring, SoftBank lowered its valuation of the company to $ 2.9 billion.
—Eliot Brown contributed to this article.
Write to Maureen Farrell at [email protected] and Konrad Putzier at [email protected]
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