Deleting it may be the best option for the company

Delaying an initial public offering is demoralizing for employees, frustrating for bankers and lawyers seeking compensation and disappointing for investors.

It's also probably what WeWork should do.

WeWork – technically known as The We Company – is in discussion with its advisors and shareholders, including its largest fund, the SoftBank Vision Fund, to find out whether or not to proceed with its IPO. later this month, according to people close to the record.

No decision was made, said the people who asked not to be named because the conversations are private. The Wall Street Journal previously reported that WeWork had discussed with SoftBank an investment that would allow the company to become public in 2020.

Discussions on how to proceed follow the realization that public markets will initially value us at a much lower valuation than the last round of private financing of the company. Sources told CNBC Thursday that the company would probably not be able to get a $ 25 billion valuation through an IPO. That's at least $ 22 billion less than WeWork's $ 47 billion private valuation.

Many factors come into play, making it difficult to impose an advance or a delay. The Vision Fund is the largest independent holder of the company, with approximately 114 million Class A shares. Bloomberg reported Thursday that SoftBank Group Corp. and its subsidiaries owned approximately 29% of WeWork's total. SoftBank has invested about $ 10 billion in WeWork, including the latest $ 1 billion investment that valued the company at $ 47 billion.

A value significantly lower than 47 billion dollars, will not be a good perspective for Masayoshi Son, who is trying to raise funds for Vision Fund 2. SoftBank is already under water with its investment of 7.6 billion dollars in Uber, arguably the biggest mistake of the tech industry an IPO before WeWork's upcoming debut (if that happens).

The morale of WeWork's employees would also be disastrous if even an IPO of $ 20 billion or $ 25 billion would collapse immediately, just like Uber or Slack, another late investment. Vision Fund. Determining the floor – how much WeWork can be traded – is part of the job of financial advisors, which in this case include JP Morgan, Goldman Sachs and Bank of America.

Once again, CEO Adam Neumann, WeWork's largest shareholder, may want to increase his liquidity options if he believes WeWork's chances of flourishing will only get worse. Neumann has already sold more than $ 700 million in stock and debt before its IPO, according to the Wall Street Journal.

The fundamental reason for making public is, of course, to access capital. If SoftBank does not provide billions more to WeWork to help maintain its private valuation, WeWork may not have any other choice than to go from there. before with his IPO – in particular, as Axios tweeted Dan Primack, because the company's $ 4 billion debt depends on the company becoming public.

Market timing is another dilemma. If the US is headed for a recession, it might be logical for WeWork to go public now, before closing the so-called IPO window. If he expects, WeWork could be excluded from access to public capital for years to come.

Still, WeWork should probably wait.

Large institutional buyers have already made a decision regarding WeWork, with a loss of $ 1.7 billion over 12 months at the end of June, lease payment obligations of $ 47.2 billion and an attempt to create new A new financial measure of Ebitda adjusted according to the community. And the verdict of these buyers is "pass".

The argument of the "impending recession" is as much an argument in favor of delay as charge forward. If investors are unwilling to let WeWork the same leash as other tech companies with the loss of money, such as Amazon and Netflix, a recession will only hurt the prospects of the public procurement company. Although WeWork can argue that its business model is proof of the recession, it is more likely that public markets will treat the company as most commercial real estate entities, which typically face difficulties in times of economic downturn due to the redundancy. employees and reducing office space costs. Individuals or small businesses that could now use WeWork could also downsize for home offices or other less expensive spaces.

WeWork could also modify its expansion and capital expenditure objectives by remaining private, which would allow it to expand without requiring additional funds. Although this type of stability may be healthy for the company, it would probably be satisfied by a public share sale once the company opened.

Neumann has many reasons to support his belief that his business is well suited to a recession. He told Business Insider WeWork that it cost 50% less than the average office in New York. He said WeWork had already survived recessions in other countries. He explained that WeWork offers "flexibility and mobility", two advantages in case of economic slowdown compared to the static commercial real estate lease. And he added that companies can count WeWork as a membership agreement and therefore be accounted for as an off-balance sheet expense.

All this may be true, but public markets will be more convinced if WeWork proves them first as facts, rather than taking a leap of faith.

If Neumann really believes in the ability of his company to cope with a recession, WeWork could become a much more appetizing IPO after a recession. This would help Neumann to grasp the value of the company's potential rather than cede it to public investors.

In addition, the SoftBank Vision Fund is intended to be fully dedicated to long-term investments. This is the primary focus of the fund's investment strategy: "The fund will target significant, long-term investments in core companies and platform companies to enable the next age of innovation."

SoftBank may decide to inject billions of additional dollars in the form of a capital injection to finance its own exaggerated valuation of WeWork, but Son's fund was already planning to invest $ 16 billion in the company. This suggests that His firmly believes that WeWork will be one of these "fundamental platform companies".

Ultimately, a decisive decision can be made depending on the mediocrity of advisers who expect an IPO. WeWork should start its roadshow next week. A 50% reduction in valuation is not a good sign. Even worse, it could kill an IPO in 2019.

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