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WeWork is in talks to combine with a special purpose acquisition company, according to people familiar with the matter, a deal that would bring the office rental company to the public market more than a year after its high-profile failure to organize. an initial public offering.
WeWork’s board of directors and chief executive officer Sandeep Mathrani have been evaluating offers for a Bow Capital Management LLC affiliated PSPC and at least one other unidentified acquisition vehicle for several weeks, people said. A deal could value WeWork at around $ 10 billion, some people have said. We could not know if this includes the debt.
The company has also received separate offers for a new round of private investment, and it may well go that route instead, one of the people said. If it did, WeWork would remain private and use the money to support its growth initiatives.
Discussions are complicated and there is no guarantee WeWork will end up making a deal anytime soon, people have warned.
“Over the past year, WeWork has remained focused on executing our plans to achieve profitability,” said Lauren Fritts, director of communications for WeWork. “Our significant progress, combined with the growing market demand for flexible spaces, shows positive signs for our business. We will continue to explore opportunities that help us move closer to our goals. “
Private companies are flocking 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. She signs long-term leases with landlords, then after renovating a space and furnishing it, sublets small offices or even entire buildings to tenants for as little as a month at a time.
If WeWork made its public debut via a SPAC, it would cap what had been a long and bumpy road to a list. WeWork’s attempt to exploit the public markets in 2019 failed when investors rejected the losing company and its visionary but erratic leader, Adam Neumann, who later resigned as chief executive officer.
It would also be one of the brightest markers of the craze surrounding PSPCs, or blank check companies, as they are also known. PSPCs go public as empty vehicles with no business, then search for one to hang on to. The transaction turns Target into a public company in a deal that may be shorter and less burdensome than a traditional IPO.
This year alone, more than 80 new PSPCs debuted, nearly five per working day, according to data provider SPAC Research.
Bow Capital Management is led by Vivek Ranadivé, owner of the Sacramento Kings of the NBA and founder of Tibco Software Inc. The SPAC raised $ 420 million last year. The venture capitalist appoints great basketball player Shaquille O’Neal as adviser.
Mr. Mathrani has been for almost a year in his tenure as CEO of WeWork, a period in which he has faced not only a company that was bleeding money, but also a pandemic that has forced people to to stay away from offices.
As the commercial office market was hit by the virus, WeWork had sufficient cash cushion thanks to late 2019 rescue funding from the SoftBank Group. Corp.
By the start of the pandemic, WeWork had already started shutting down numerous sites, renegotiating leases and selling non-essential businesses, and cut thousands of jobs in a bid to cut spending.
The company was not looking for capital and did not need cash immediately, some people said. WeWork, which was at risk of running out of cash when the IPO crashed, had more than $ 3 billion on its balance sheet in the third quarter, when earnings were last released. Mr. Mathrani said WeWork is expected to become profitable by the end of 2021.
WeWork reported negative free cash flow of $ 517 million in the third quarter on revenue of $ 811 million, down 8% from the second quarter.
SoftBank owns a majority stake in WeWork, and the future role of the Japanese tech conglomerate will be a key factor in negotiations with potential merger partners or new investors.
A valuation of $ 10 billion would still be a long way from WeWork’s peak valuation in early 2019, when a SoftBank funding round pegged it at $ 47 billion.
SoftBank and other investors have been drawn to WeWork’s rapid growth – with revenue doubling every year. But that growth has been fueled by extraordinary spending levels, leading to equally rapid increases in losses. After the failed IPO, WeWork scaled back Mr. Neumann’s grand vision of delivering a multitude of 21st century services around the world.
As stocks plunged last spring, SoftBank reduced 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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