After failing to garner enough investor interest to IPO, co-working company WeWork has found a white knight in its continuous backer SoftBank, which struck a deal to take control of the business and provide new funding.
With this latest funding package, SoftBank has essentially provided financial security for WeWork. The latest move in the WeWork saga will reassure landlords and lenders alike of the company’s underwriting and creditworthiness.
The Japanese investor has agreed to take up to 80 percent ownership and provides WeWork with an additional $5 billion in new financing. SoftBank also plans to launch a tender offer of up to $3 billion for existing shareholders and accelerate the existing commitment to fund $1.5 billion. From this, media reports estimate that WeWork is now valued at around $8 billion, a far cry from the $47 billion in January.
With SoftBank – a multinational conglomerate with an almost $100 billion venture capital fund – taking control, landlords should see WeWork honoring its current lease obligations. As such, even in a worst-case scenario, where the co-working model is challenging, there will at least be recourse to the parent company. More immediately, SoftBank’s presence will also be felt on the business model and growth expectations of the company.
Already, the deal has brought the start of a new WeWork era. With two new chief executives in place and founder Adam Neumann out of the picture, this WeWork reboot is likely to adopt a more conservative view than its predecessor. “Streamlining” and “stabilizing” the business are focuses for the two co-CEOs, Artie Minson and Sebastian Gunningham, according to the announcement. To “right-size” the business and put it on a path to profitability, WeWork now plans to cut as many as 4,000 jobs, the Financial Times reported. This compares with founder and former chief executive Adam Neumann’s focus on rapid growth.
WeWork’s current landlords will be sighing relief after the recent IPO debacle. With SoftBank taking such a majority stake, the tenant is now a more reliable and solid offering. Its valuation is down to a more reasonable level, and a more mature leadership team has taken the helm, one manager voiced to PERE this week. Having a solvent parent – SoftBank raised $97 billion for its Vision Fund – is certainly a benefit, although the manager said that many WeWork leases are not guaranteed by the parent.
This could be the best possible near-term outcome for WeWork and all entities associated – investors, employees and landlords. The change in leadership is critical for the company to move on also, another manager commented.
Furthermore, this latest deal crystalizes a pricing point for WeWork and other co-working entity underwriting to take place. It offers institutional landlords meaningful data with which to consider their flexible space working relationships, whether as part of an offered suite of services, or as a provider of accommodation.
The industry is watching this ‘disrupting’ sub-office class take another step towards becoming a more mature sector in its own right. And while WeWork’s journey has not been without losers –SoftBank has essentially crystalized a loss on its $13 billion of backing so far, up to 4,000 employees may lose their jobs and Neumann has gone, presumably before he initially intended to – their losses will be a net gain for institutional real estate.
Write to the author Lisa Fu at firstname.lastname@example.org