WeWork is in negotiations to agree with a special purpose acquisition company, according to people familiar with the matter, a deal that would introduce the office rental company to public markets more than a year after its high-level failure to stage a traditional initial public offering.
WeWork’s board and its chief executive, Sandeep Mathrani, have been evaluating offers from a SPAC affiliated with Bow Capital Management LLC and at least one other unnamed acquisition vehicle for several weeks, people said. A deal could value WeWork at about $ 10 billion, some people said. It was not possible to know whether this includes debts.
The company has also received separate offers for a new round of private investment and may well follow that path, one person said. If so, WeWork would remain private and use the money to support its growth initiatives.
The negotiations are complicated and there is no guarantee that WeWork will end up closing a deal, people warned.
“For 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 increased market demand for flexible spaces, shows positive signs for our business. We will continue to explore opportunities that help us get closer to our goals. “
Private companies are switching to special-purpose acquisition companies, or SPACs, to bypass the traditional IPO process and obtain a public listing. WSJ explains why some critics say that 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 market. It signs long-term lease agreements with landlords and, after renovating and furnishing a space, subleases small offices or even entire buildings for tenants for just one month at a time.
If WeWork made its public debut through a SPAC, it would end what had been a long and bumpy road to listing. WeWork’s attempt to reach public markets in 2019 failed when investors rejected the loss-making company and its visionary but erratic leader, Adam Neumann, who later resigned as president and CEO.
It would also be one of the brightest markers in a craze around SPACs, or blank check companies, as they are also known. SPACs go public as empty vehicles without a company and then look for one to grab. The transaction turns the target in a public company into a business that can be less time consuming and complicated than a traditional IPO.
This year alone, more than 80 new SPACs have been launched, almost five per business day, according to data provider SPAC Research.
Bow Capital Management is run by Vivek Ranadivé, owner of the NBA’s Sacramento Kings and founder of Tibco Software Inc. SPAC raised $ 420 million last year. The venture firm lists the great basketball Shaquille O’Neal as a consultant.
Mr. Mathrani has been in his tenure as CEO of WeWork for almost a year, a time when he faced not only a company that was bleeding money, but also a pandemic that forced people to stay away from the offices.
While the commercial office market was hit by the virus, WeWork had a large cash reserve thanks to end-2019 rescue financing from SoftBank Group Corp.
At the beginning of the pandemic, WeWork had already started to close several locations, renegotiate leases and sell non-essential businesses and cut thousands of jobs in an attempt to cut expenses.
The company was not looking for capital and did not need money immediately, some people said. WeWork, which was at risk of running out of cash when the IPO collapsed, had more than $ 3 billion on its balance sheet in the third quarter when it last released the results. Mr. Mathrani said that WeWork is expected to become profitable by the end of 2021.
WeWork had a negative free cash flow of $ 517 million in the third quarter, with revenue of $ 811 million, down 8% from 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 $ 10 billion valuation would still be a far cry from WeWork’s peak valuation in early 2019, when a SoftBank financing round set it at $ 47 billion.
SoftBank and other investors were attracted by WeWork’s rapid growth – doubling in revenue each year. But that growth was fueled by extraordinary levels of spending, resulting in equally rapid increases in losses. After the failed IPO, WeWork reduced Mr. Neumann’s big vision of providing a range of 21st century services worldwide.
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]
Copyright © 2020 Dow Jones & Company, Inc. All rights reserved. 87990cbe856818d5eddac44c7b1cdeb8