WeWork has agreed to go public through a merger with blank-check firm BowX Acquisition Corp in a deal that values the office-sharing startup at $9 billion including debt.
It marks a steep drop from the $47 billion that WeWork was valued for a listing in 2019, ahead of a botched listing plan that imploded due to investor concerns over its business model and its founder Adam Neumann’s management style.
Even though WeWork has long lost billions of dollars, it always found ways to attract huge investments from deep-pocketed investors. Now, less than two years after it was rescued from a collapse, the co-working company has found yet another backer willing to overlook its losses. The company announced on Friday that it had agreed to merge with a blank-check firm in a deal that would give it a listing on the stock market it was denied when it was forced to shelve an initial public offering as investors questioned its financial strength and dubious governance practices.
Instead of a traditional I.P.O., WeWork is merging with BowX Acquisition, a company listed on the stock exchange for the sole purpose of buying a business, in a type of deal that has become hugely popular in recent months. Investors, bankers, and even celebrities and athletes have rushed to float such special purpose acquisition companies, or SPACs, because they offer their creators a chance to mint huge profits relatively quickly. And merging with these vehicles is attractive to companies like WeWork because they provide an express lane onto the stock market without the obstacles that scuttled WeWork’s public offering in September 2019.
A SPAC is a shell firm that uses proceeds from a public listing to buy a private firm and WeWork is the latest in a slew of high-profile companies that have taken this route to the markets.
“There have been doubts raised about its business model, and those doubts may be difficult to address in an I.P.O. roadshow,” said Michael Klausner, a Stanford business professor, referring to the presentations that companies give to mutual funds, pension mangers and other institutional investors before a public offering. SPACs are “highly problematic” because their structure can encourage buyers to overpay, hurting shareholders in return, he said.
In 2021 only, 295 SPACs had gone public (USA, source New York Times), raising $93 billion and breaking last year’s record in a matter of months. Because so many of these companies are now out there, some have tried to use star power to get businesses to entertain their merger offers.
WeWork said the deal with BowX gave it an equity value of $7.9 billion, far less than the nearly USD 50 billion value that its investors placed on the company in 2019. WeWork will receive $1.3 billion in cash from the deal, including $800 million from Insight Partners, Starwood Capital Group, BlackRock and other investors.
WeWork will fetch $1.3 billion in cash from the latest deal, including $800 million in private investment from Insight Partners, funds managed by Starwood Capital, Fidelity Management and others.