WeWork shot to success in one fell swoop, only to fall dramatically before their first prospective initial public offering. They’re again up for an IPO. This time around, however, the companywhich specializes in leasing office space for coworking individuals and small businessesis pursuing a different brand of IPO.
WeWork considered an IPO in 2019. At one point, they had a supposed valuation of $47 billion, but questionable leadership and uncertain financial circumstances halted the bid. Now, WeWork has been working overtime to get back on track with new leadership and more appropriate practices. In late March, the firm announced its plans to merge with a blank-check company, BowX Acquisition.
BowX is a SPAC, the shorthand for special purpose acquisition companies, which are experiencing a heyday in the world of IPOs. SPACs are sometimes called shell companies; they have no business purpose other than to raise funds to merge and take another company public. More than 200 companies went public through SPACs in 2020, and now WeWork has boarded the bandwagon.
Related: Guide to special purpose acquisition companies
TL;DR
- WeWork began in 2010 under founders Adam Neumann and Miguel McKelvey.
- WeWorks original business was to provide coworking office space for entrepreneurs, freelancers, and others needing a different kind of work environment. They greatly expanded over the next eight years, adding more office leases and moving into new territories.
- In September 2018, WeWork surpassed J.P. Morgan Chase & Co. to become New York Citys largest commercial tenant.
- The company became infamous for CEO Adam Neumanns bold ambitions and questionable leadership practices. In 2019, they rebranded as The We Company, with three segments: WeWork, WeLive, and WeGrow.
- Their 2019 IPO plans fell apart as investors lost faith in the company’s business model.
- Just weeks before WeWork would run out of cash, SoftBank bailed out the company in the fall of 2019, and Neumann was removed as CEO.
- In February 2020, Sandeep Mathrani, a real-estate executive, took the helm as CEO of WeWork, just before the pandemic hit and toppled revenue for coworking spaces. This year, they’re planning another IPOthis time via a reverse merger with a SPAC rather than a traditional IPO.
How WeWork started
Adam Neumann and Miguel McKelvey co-founded WeWork in 2010 in New York. Before the founding, the duo convinced their landlord to let them take over and redesign the space in a vacant Brooklyn property, turning it into semi-communal office space for rent. That initial location, called Green Desk, found instant success. The landlord wanted to expand, but Neumann and McKelvey sold their stake in Green Desk to venture out on their own.
They took the proceeds of the Green Desk sale and opened the inaugural WeWork location on the corner of Grand and Lafayette Streets. From there, WeWork locations opened around the U.S. and eventually spread to places like China, India, and Latin America. At their core, WeWork provides office workspaces for businesses of all sizes, with options for private or open coworking spaces and various levels of membership.
Neumann was known for making grandiose claims about WeWorks mission. He said it was much greater than merely leasing office space. In 2017, he stated that WeWorks valuation and size today are much more based on our energy and spirituality than it is on a multiple of revenue.
WeWork may have had its eccentric co-founder Adam Neumann to thank for its rapid rise, but the company can also largely blame him for their sudden collapse. He brought a great deal of scrutiny to the company with his partying lifestyle. He leased out his own buildings to WeWork to maximize his personal profits and maintained an outsized level of control over the firm.
Neumann and the rest of the company also promoted unrealistic growth projections for the company. For instance, they counted any American desk worker living in a city with a WeWork space as a potential member, ultimately leading to gross overestimations that hoodwinked investors.
WeWork: Fundraising history
Heres a brief summary of the WeWork fundraising rounds the company has conducted:
- Seed Round: WeWork held a $1 million seed funding round in 2011.
- Series A: Benchmark led the Series A fundraising round for WeWork with $17 million in 2012.
- Series B: In February 2013, WeWork raised another $40 million. At that point, its valuation was $318 million.
- Series C: Later the same year, in November 2013, WeWork raised $157 million to give the company a $1.6 billion valuation, crossing into unicorn territory.
- Series D: An additional $355 million was injected into the company in October 2014. Post-money valuation was $4.96 billion.
- Series E: In May 2015, WeWork raised $433.9 million for a valuation of $10 billion.
- Series F: Hony Capital and Legend Holdings led a $690 million Series F, giving WeWork a $16.9 billion post-money valuation.
- Series G: SoftBank Vision Fund led the massive $4.4 billion Series G round in August 2017. WeWorks valuation was then $20 billion.
- Debt Financing: In April 2018, WeWork went through a debt financing round worth $702 million. August 2018 brought another $1 billion in debt financing from SoftBank.
- Funding Round: SoftBank continued to support WeWork with $3 billion in funding in November 2018.
- Series H: In January 2019, SoftBank poured another $1 billion into WeWork, while simultaneously buying $1 billion in secondary shares. The firms valuation shot up to $47 billion at this time (though this was likely a fiction valuation created by SoftBank’s hefty investments).
- Debt Financing: In October 2019, WeWork accepted $1.5 billion from SoftBank as a bailout after their failed IPO. This occurred mere weeks before the company was projected to run out of money
- Debt Financing: Goldman Sachs contributed $1.8 billion in debt financing in December 2019.
- Debt Financing: SoftBank invested another $1.1 billion through debt financing in August of 2020.
What happened to the first WeWork IPO?
Adam Neumann held gargantuan hopes for WeWork, not only in terms of financial success but also potential to stimulate real social change. Nuemann stated the company mission was to elevate the worlds consciousness.” He dreamed of becoming the worlds first-ever trillionaire.
In the summer of 2019, WeWork was readying the IPO. They were looking to raise $3.5 billion with an offering. SoftBank had recently given the company a $47 billion valuation, and WeWork planned to raise up to $10 billion between the IPO and a related loan.
Neumann even had the heads of the New York Stock Exchange and the Nasdaq Composite courting WeWork to list with them. Neumann reportedly insisted they ban meat and single-use plastics in their corporate cafeterias. The Nasdaq chief Adana Friedman came up with an alternative Neumann liked: a new sustainable-company exchange to be called the We50.
But the IPO listing was not to be.
As the Wall Street Journal reported later of the S-1 filing:
The document detailed a company with swelling losses, no clear path to turning a profit, and a history of self-dealing by its CEO.
Neumann scrambled to find more investors as other banks downgraded the price range they expected IPO investors to pay. The IPO roadshow, scheduled for September 15, 2019, was postponed.
Some of what worried investors was that Neumann held too much voting power through special shares that were worth 20 votes apiece. In addition, he was known for making deals in which he would purchase office real estate himself and then lease it out to WeWork.
SoftBank bought nearly 30% of the companys equity. Masayoshi Son of SoftBank then moved to have Neumann removed as CEO, which Neumann agreed to. He made a statement shared with employees indicating he recognized the scrutiny of his management style and personal life was damaging the company.
With Neumann gone, Sebastian Gunningham and Artie Minson were named co-chief executives in the interim. Marcelo Claure, former SoftBank operating chief, became WeWorks executive chair as part of the bailout.
Neumann soon lost his position as chairman of the board, too. For his exit package, he negotiated a four-year, $185 million consulting contract along with the rights to sell up to $970 million on his company shares to SoftBank. But soon after, Neumann violated the terms, ultimately negating the consulting agreement.
Path to the latest WeWork IPO
Gunningham and Minson only held the co-chief executive roles for a few months until the company named Sandeep Mathrani as WeWork CEO. Mathranis real estate background makes him a logical leader to reverse some of the former CEOs damage.
Previously, Mathrani spent eight years as CEO of General Growth Properties, a large U.S. mall operator. After the company filed for Chapter 11 bankruptcy (which included 160 of the company’s subsidiaries), he effectively led GGP to success by selling the company for $15 billion. When Brookfield Properties took over General Growth in 2018, Mathrani transitioned to head up the new entity before moving to WeWork in 2020.
WeWork slashed unnecessary portions of their business, laid off employees, and cut costs. Since the drama of Neumanns exit from the company, the company has also faced the challenge of navigating the COVID-19 pandemic. With millions of Americans transitioning away from office spaces and into the work-from-home setup, the company suffered the brunt of the damage.
In full transparency, WeWork disclosed $3.2 billion in losses in 2020.
As employees return to the office full-time or through a hybrid working schedule, WeWork stands at the ready. Recently, Mathrani said that the office environment is beneficial to mental health and that hes a firm believer that the office is an important part of everyday living.
WeWorks executive chair, Marcelo Claure, also believes a designated workplace is superior to working entirely from home, something the pandemic has demonstrated. He asserted, We learned that the quantity of meetings over video chat is no substitute for the quality (or productivity) that comes from spending physical time together.”
Of course, both Mathrani and Claure have a vested stake in the company’s success, so inventors should take these statements with a grain of salt.
WeWork has selected SPAC BowX Acquisition Corp.which counts former NBA star Shaquille ONeal among its backersfor a reverse-merger IPO. The board of directors of both BowX and WeWork unanimously approved the decision.
When is the WeWork IPO date?
The new WeWork IPO date is not yet official, but the companys press release detailing the transaction with BowX Acquisition stated that it should close by the third quarter of 2021.
The merger includes funding of $483 million of BowXs cash in trust and a fully committed $800 million private placement investment. The $800 million investment will come from Insight Partners, funds managed by Starwood Capital Group, Fidelity Management & Research Company LLC, Centaurus Capital, and funds and accounts managed by BlackRock.
Post-merger, the company expects to have about $1.9 billion of cash and $2.4 billion in total liquidity.
What to know about the upcoming WeWork IPO
WeWork leadership detailed the improvements the company has made since Neumanns 2019 exit:
- In 2020, the company improved its free cash flow by $1.6 billion. This was brought about by reducing selling, general, and administrative (SG&A) expenses. They also cut building operations expenses.
- 2020 revenue (excluding China) was static at $3.2 billion in spite of pandemic struggles.
- WeWork has an estimated $1.5 billion in committed 2021 revenue.
- Over half of the companys members have commitments longer than 12 months versus only 10% with month-to-month commitments.
- Mathrani has said the company was on track to become profitable by the end of 2021.
The press release about the merger emphasized WeWorks commitment to remaining disciplined and aligned with shareholder interests.
In contrast to the uneven power Adam Neumann once held over the company, WeWork plans a post-merger board of directors that is majority independent.
New WeWork CEO Mathrani is a seasoned executive without the wild reputation of the company’s previous leader. He will serve on the board along with individuals selected by new and existing investors. Representatives of SoftBank Group and SoftBank Vision Fund will make up a minority of the nine board member spots.
Less than two years after the failed WeWork IPO, potential investors might benefit from a healthy dose of skepticism. SPAC mergers do not require the same level of due diligence as companies conducting a traditional IPO. The New York Times noted that some companies using SPACs to go public could never bear the scrutiny that comes with an I.P.O.
Related: How to know if a stock is risky
Bottom line
In spite of WeWorks shadowed past, they seem prepared to facilitate the changing nature of work through focused efforts on the core business. With experienced, responsible leadership and more structured oversight of the company, moving forward into the public market could prove to be the right move for WeWork this time around.
As for investors, due diligence is all the rageand for good reason.