WeWork Inc., once the world’s largest coworking space, has been struggling to keep its operations afloat for a long time now. In the latest move, the Competition Commission of India (CCI) has given the company the green light to exit India once and for all. WeWork Inc. is transferring its entire 27.5% shareholding in WeWork India Management (WeWork India) to existing shareholders of the local entity.
WeWork Inc. and WeWork India’s parent, Embassy Group, would jointly sell approximately 40% of their stake in the local co-working unit, WeWork India.
The proposed transaction involves two main steps:
- Step 1: Real Trustee, representing Volrado Ventures, will acquire shares of WeWork India from Embassy Buildcon, alongside other independent co-investors purchasing minority stakes directly.
- Step 2: Embassy Buildcon, an existing majority shareholder of WeWork India, plans to acquire 100% of the share capital of 1 Ariel Way Tenant Limited (OAW) from WeWork International. This acquisition will allow Embassy Buildcon to maintain majority control over WeWork India.
Investors, including the Enam Group family office, investment fund A91 Partners, and CaratLane founder Mithun Sacheti, are also participating in the deal.
Sources indicated that WeWork’s plan to exit its operations in India was stalled due to pending regulatory approval from the CCI. This approval was crucial because it involved significant financial transactions and restructuring within WeWork India. The CCI’s role was to ensure fair competition and prevent any anti-competitive practices resulting from the transaction. With this hurdle now cleared, the ownership structure in WeWork India will undergo a significant transformation.
As WeWork Inc. has completely exited India, the name of its Indian subsidiary, WeWork India Management Private Limited (WeWork India), is most likely to change.
The exit of WeWork from India comes at a time when the Indian unit not only achieved profitability but also significantly expanded its customer base over the past two years. Let’s dig deeper into it!
WeWork India’s Performance and Future Prospects
WeWork India began its operations in 2017 as a joint venture between WeWork Global and the Embassy Group. It quickly established itself in India’s competitive coworking space market. Despite challenges faced by its parent company, WeWork Inc., in the US and other countries, WeWork India thrived under the management of the Embassy Group.
In June 2021, WeWork Global invested $100 million in WeWork India, bolstering its financial stability amidst the COVID-19 pandemic, which severely impacted the office space market. This investment proved instrumental as WeWork India reported impressive financial results, with revenue growing by 67.6% YoY to Rs 1,314 crore in FY23. Moreover, the company reduced its net losses by 77.3% to Rs 146 crore during the same period, highlighting its operational efficiency.
With about 90,000 desks and an occupancy rate exceeding 80%, the Indian unit has established a strong market presence. It has expanded to over 8 million square feet of assets across 54 locations in major cities like New Delhi, Bengaluru, Mumbai, and Hyderabad.
Now, one must be wondering why WeWork Inc. is pulling out from India despite becoming profitable!
Reasons Behind WeWork Inc.’s Exit from India
Despite WeWork India’s success, the decision for WeWork Inc. to exit India was driven by its ongoing financial challenges and restructuring efforts in the US.
In 2019, WeWork’s attempt at an initial public offering (IPO) failed due to concerns over its high valuation and substantial operating losses. This led to increased scrutiny and financial instability. Despite implementing cost-cutting measures and significant layoffs, WeWork Inc. found itself saddled with a massive debt of $19 billion. These financial pressures eventually led to the company filing for Chapter 11 bankruptcy in November 2023.
Fast forward to June 2024, WeWork announced its successful emergence from Chapter 11 in the US and Canada, completing a global operational and financial restructuring.
With John Santora now at the helm as CEO, WeWork Inc. is focusing on reorganizing its operations to regain financial stability. This strategic shift involves prioritizing core markets where the company believes it can achieve sustainable profitability while scaling back operations in non-core regions, including India.
Additionally, the funds from the sale can be used to pay down some of WeWork Inc.’s debt, improving their overall financial health.
Industry Dynamics and Competitor Advantages
WeWork Inc.’s departure from the Indian coworking market coincides with a surge in demand for coworking spaces following the pandemic. This trend is favoring competitors like Bhive, CoWorks, Indiqube, and 91Springboard.
Awfis, backed by Peak XV Partners, has opted for an IPO to raise capital amid increasing demand. It reported revenues of Rs. 616 crores in the first three-quarters of FY24. Similarly, Smartworks has attained profitability by catering to large enterprises and offering tailored office solutions.
The Indian co-working space market was valued at $0.63 billion in FY2023 and is anticipated to grow to $1.53 billion by FY2031. The market will grow at a compound annual growth rate (CAGR) of 13.47% between FY24 and FY31.
WeWork’s exit from India highlights the differing fortunes of a global brand and its local subsidiary. While WeWork Inc. grapples with financial burdens in the US, WeWork India has established itself as a major player in the Indian co-working space. This shift presents an opportunity for both WeWork India to adapt under new ownership and for its competitors to capture a larger market share in a thriving co-working industry.
