WeWork (WE) Goes Public Via SPAC Merger

Workspace sharing company WeWork (WE) made its long-awaited public listing on Thursday, Oct. 21, climbing 13.49% on its first day of trading to close at $11.78. Instead of going public through a traditional initial public offering (IPO), the New York City-based company completed a $9 billion merger with blank check firm BowX Acquisition Corp. (BOWX), a listed special purpose acquisition company (SPAC).

SPACs comprise a group of large investors that come together to help a company speed up its public listing, often at the expense of transparency for outside investors. In recent years, SPACs have increased in popularity with investors, given their structure allows profits to be generated relatively quickly. As of Oct. 22, 489 SPACs have gone public in 2021, raising more than $135 billion, up from $83 billion last year.

Merger Details

The merger gives WeWork an equity value of $9 billion, substantially less than the $47 billion at which its leading investor SoftBank Group Corp. (SFTBY) valued the company before an ill-fated 2019 IPO attempt. Back then, investors developed cold feet over lavish spending and the unpredictable behavior of CEO and founder Adam Neumann. Under the deal that sees BowX control 56% of the company, the office space provider will also receive a $1.3 billion cash injection, which includes $800 million from prominent investors, such as Starwood Capital Group and BlackRock, Inc. (BLK).

Demand for Working Flexibility Grows

Despite the uncertainly of how working trends will play out after the pandemic, BowX's chief executive Vivek Ranadivé remains bullish about WeWork's prospects in the post-Covid world, arguing that corporates' emphasis on flexibility provides a tailwind for the company. "Companies have now decided that flex space is the must-have," he told CNBC in an interview, per The New York Times. "Maybe for their own headquarters, they want to own that space. But for everything else, they want to hand it over to a WeWork," he added.

However, it remains to be seen if companies and others requiring office space—such as freelancers, startups, and small businesses—will sign up to workspace sharing providers at the same rate as pre-pandemic levels amid the work-from-home trend that has accelerated over the past two years.

Looking Ahead

Moving forward, WeWork has pledged to remain prudent. CEO Sandeep Mathrani, who replaced Neumann after the failed IPO launch in 2019, has already slashed costs, reduced office locations, and placed a greater focus on the office leasing company's core business. As part of this shift, WeWork has moved to more extended membership arrangements. Over half of its members have leasing commitments longer than a year, with only 10% of customers opting for month-to-month leases.

A turnaround that thrives on a work environment turned on its head by the coronavirus health crisis will be vital given the company posted a $3.2 billion loss in 2020, despite trimming capital expenditure (CapEx) by 98% from 2019. WeWork expects to bring in second-half 2021 revenues of $1.5 billion, up from the $1.2 billion it generated in the first half.

Disclosure: The author held no positions in the aforementioned securities at the time of publication.