WeWork IPO: With $9 Billion Valuation And Merger, Softbank Takes A Shot, Again!

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Perseverance does pay off. The news of WeWork IPO is once again creating waves!

The development coming from WeWork’s corner is the latest example to prove precisely that. Having failed spectacularly on its first attempt at IPO, WeWork has risen from the ashes to finally go public.

With swirling reports now confirmed by WeWork in a press release, the company has chosen to tread the familiar SPAC route in going public. In a deal said to touch a valuation figure of $9 billion, the merger is going to take place with BowX Acquisition Corp.

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The BowX Acquisition Corp. SPAC’s sponsor is Bow Capital Management, helmed by Vivek Ranadivé, owner of software group Tibco and NBA franchise Sacramento Kings. Another claim to fame for BowX is NBA legend Shaquille O’Neal, who is listed as an advisor to Bow Capital Management. The SPAC BowX Acquisition Corp. had managed to raise $420 million last year.

Now, the nitty-gritty of the transaction would see the deal being funded with BowX’s $483 million of cash in trust. The merger will also see debts being included in the valuation, as per WeWork. What’s more, it is also to be pumped with $800 million in private investment in public equity (PIPE) from some prominent groups including the likes of Insight Partners, funds managed by Starwood Capital Group, Fidelity Management, and others as per information released by the company.

WeWork is hoping to garner close to $1.3 billion in cash from the deal, which will also see Ranadivé and Deven Parekh, Managing Director – Insight Partners, joining up in the boardroom.

The news is indeed a coming of a full circle for the Softbank-backed company, which has ridden its fair share of peaks and valleys to turn around the fortunes of the company.

After a bombed attempt at an IPO in 2019 under Adam Neumann’s leadership, it led to him getting the axe. This was followed by Softbank’s bailout offer to buy $3 billion in stock from WeWork investors, including close to $1 billion from Neumann himself. It had subsequently led to a lawsuit after Softbank’s backtracking over the purported deal then.

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The Japanese conglomerate, however, chose to enter into a settlement agreement with the eccentric Israeli entrepreneur to end a bitter feud over a collapsed stock transaction. It makes Neumann walks out the company’s doors with roughly $480 million, no less.

All of the doing right by things in only one bid – to arrive at a successful IPO, which has now been achieved by Softbank’s efforts with WeWork.

Even though WeWork valuation is a far cry from the $47 billion valuation figure estimated in 2019, it is in line with the $10 billion roundabout figure that began to be expected following the settlement with the WeWork investors earlier.

WeWork’s valuation had nosedived to below $5 billion in the September of 2019. The plunge was reflective of the growing concerns about the company’s business model, under the ever-controversial behaviour of Adam Neumann. To recover in such a manner is a remarkable turnaround on the company’s part.

Needless to say, a SPAC transaction held an obvious appeal for the merger. Raising a separate pot of institutional money, in the form of private placement investment, the deal serves to make WeWork less dependent on majority owner Softbank Group Corp. for funding.

As such, SPAC, has gone on to become something of a buzzword in the biz world. Essentially, it is a shell company that raises money through an IPO to merge with another firm, allowing that business to list that much more quickly. SPACs have become more prevalent due to the volatile nature of the market thanks to the pandemic. Roughly 200 SPACs went public in 2020, raising a staggering $64 billion in total funding as a result, according to Renaissance Capital.

Also, on the pragmatic side of things, a SPAC merger allows the company to save some valuable time by circumventing the “grueling process” process of registering an IPO with the SEC, which alone can take up to six months. As a matter of fact, SPACs having mostly been listed in the US, raked in a record $83.4 billion through IPOs last year, according to SPAC research.

WeWork, which has narrowed down losses to $3.2 billion from $3.5bn in 2019, has set itself a lofty target of becoming free cash flow positive by 2022, as part of a plan, which was aimed at boosting valuation upon going public and winning back investor trust.

WeWork, now headed by two assigned executives, has sought to introduce significant cutbacks, laying off around 2,000 employees. According to a report, WeWork recorded income of $811 million in the third quarter of 2020, burning through another $517 million in the offing.

Those stats notwithstanding, with some stable leadership in the form of CEO Sandeep Mathrani, it looks like WeWork has finally ushered in the new chapter it was waiting for. And with the worst of times past it, it is poised to gallop into the world with a fresh leaf and solid backing, looking to make the most of the post-pandemic opportunities.

Stay tuned for more updates.

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