A year and a half after its failed IPO attempt, WeWork is finally going public. Instead of trying a traditional IPO again, the troubled coworking group is using a different financial maneuver: merging with a special purpose acquisition company, known as SPAC. The deal, which values WeWork at $ 9 billion including debt, represents a bit of closure for a company that had a roller coaster ride a few years ago, from a darling of the $ 47 billion technology to a cautionary tale. . It also highlights how frantic the race for SPAC has become.
The Wall Street Journal confirmed on Friday that the company is merging with BowX Acquisition, sponsored by SPAC Bow Capital Management and managed by the owner of Sacramento Kings and founder of Tibco Software, Vivek Ranadivé. In a way, WeWork is the candidate par excellence for SPAC: it is a high profile company that, otherwise, would have difficulty going public. It is also operating in the bustling coworking industry: WeWork basically rents properties for offices, makes them look cool, and then subleases that property to companies and individuals looking to rent for a short term.
There are contradictory signs for the company’s financial prospects. On the one hand, WeWork and other shared office space companies can thrive after the pandemic, as companies rethink their traditional office rentals and opt for more flexible solutions. On the other hand, WeWork posted a loss of almost $ 4 billion last year and almost the same in 2019. The BowX acquisition is currently trading at $ 10.72 – more than the standard $ 10 that SPACs go public and a sign that this may be a popular acquisition. However, he had traded below $ 10 before, when the merger with WeWork had already been speculated.
SPAC mergers, like the one between WeWork and BowX Acquisition, are an increasingly popular way for companies to go public. This year is on its way to a record number of SPAC companies listed on the stock exchange. The Journal reported that nearly 300 SPACs have gone public so far in 2021, raising $ 93 billion. In most years, this is more than the annual total of IPOs, traditional and SPAC. Just this morning, the Wall Street Journal also reported that media startups Axios and Athletic hope to merge and go public through a SPAC.
Wait, what are SPACs anyway?
SPACs are shell companies that go public with the express purpose of raising money to buy private companies – in fact bringing private companies to the public much faster than if they made a traditional IPO.
To be successful, a SPAC needs to merge with a private company within two years or return investors’ money. A portion of a SPAC usually costs $ 10, and buyers can get their money back if they don’t like the eventual merger. This means that they are a relatively safe investment if people buy them for that price. However, a number of recent SPACs have been trading higher. The SPAC that bought the electric car company Lucid traded above $ 60 before announcing the merger, after which the price plummeted.
And SPACs have seen an increase in demand because of an influx of retail investors – normal people who invest in companies through applications like Robinhood. While this trend democratizes access to the stock market, critics say it is also democratizing the ability to lose a lot of money. Post-merger SPACs have historically underperformed regular IPO shares. A SPAC index, which peaked in February, has been liquidated in recent days, in anticipation of further scrutiny by the United States Securities and Exchange Commission.
The flood of SPACs – many of them led by high-profile sponsors and even celebrities – means that there is a lot of money to merge with private companies – more perhaps than good companies to buy.
As University of Florida professor and IPO expert Jay Ritter told Recode recently: “Now there is so much money chasing businesses that it will be increasingly difficult to engage in attractive mergers.”