New York-based coworking office space operator WeWork has been forced into a somewhat embarrassing tactical retreat from the IPO they had planned for this month or next. The decision to pull the plug on the IPO, which had already seen WeWork consider slashing its target valuation from $47 billion to $20-$25 billion, was taken due to a lack of investor interest becoming apparent.
There have been rumours for a couple of weeks that the mounting criticism of the company’s valuation, business model and standards of corporate governance would, or should, force a rethink on the IPO. But until this week plans were in place to launch an IPO roadshow as early as Monday September 23rd.
The decision to postpone their IPO came as a result of what has been described as a ‘chilly’ response from institutional investors. Their biggest concern is said to be the influence co-founder and CEO Adam Neumann has over the company – and planned to retain through his shares carrying multiple voting rights, despite still owning a comparatively small minority holding.
Widening operating losses as the company quickly expands also didn’t help. The company lost $2.4 billion over the first 6 months of 2019 – spending $2 in global expansion for every $1 earned. There are worries that WeWork’s inflexible overheads from long term leases on office buildings could come back to bite them if tenant demand were to suddenly drop off in the event of an economic downturn. WeWork is locked into long term contracts but offers its co-working tenants, who range from freelancers to SMEs and occasionally multinationals seeking more flexible office arrangements, short term agreements.
As recently as last week it was reported that WeWork’s biggest private investor, Softbank’s Vision Fund which owns around 29% having invested over $10 billion, was urging WeWork to shelf its IPO plans. But until yesterday it appeared that the company was ready to push ahead.
Perhaps the strangest element to yesterday’s announcement was that WeWork continue to insist that an IPO is still planned before the end of the year. Given the lack of investor interest in mid-September, it isn’t clear how the company could restructure the offering in a way that would make such a dramatic difference to investors a couple of months down the line. Even an early 2020 target would seem optimistic. If the biggest hurdle for investors, even at a significantly reduced valuation, is that WeWork leases rather than owns its office spaces, that is not going to materially change in the near future.
2019 has so far been one of the biggest on record for IPOs. Industry data company Dealogic puts the figure raised so far at over $100 billion. However, a number of highly valued IPOs that also include Softbank’s vision fund as a major investor, such as Uber, Lyft and Slack and seen their share prices fall significantly post-IPO. This has increased the perception in the investment community that the involvement of Softbank leads to inflated private valuations public markets are not willing to support.