So it still happens. The American office rental company WeWork will be listed on Wall Street on Thursday, two years after an IPO that was canceled at the last minute.
This is done via a spac construction, whereby WeWork is merged into BowX, an empty exchange fund. The deal values WeWork at $9 billion (7.7 billion euros), including debt.
Two years ago, no one gave a dime for WeWork. At the time, it was valued at $47 billion, making WeWork one of the highest-rated start-ups in the world. The lessor of workplaces in trendy city offices, including in Amsterdam, was forced to cancel its IPO in September 2019. This happened after it was revealed that founder Adam Neumann had made a mess of the company he founded in 2010.
Neumann flew an ultra-luxurious Gulfstream G650 ($60 million) at the company’s expense, took over businesses with WeWork money that matched his hobbies (surfing, superfoods and psychedelic drugs) and left a business that was losing $200,000 an hour at its all-time low. In Neumann’s vision, the company – which he renamed ‘The We Company’ – had to become a community where people without permanent jobs could work and live together. This included workplaces (WeWork), but also schools (WeGrow) and residential complexes (WeLive).
Investors were so nervous about the S1 – the document with all the company details that the SEC demands for an IPO – that major investor Softbank torpedoed the plans at the last minute. WeWork lost $40 billion in value within two weeks and laid off more than 2,000 employees. Adam Neumann had to leave his company under pressure.
It was a wake-up call for start-up financiers, looking for ‘winners’ who grow as fast as possible to eventually become the largest in their market. After the WeWork soap opera, profitability seemed just as important as growth, but now everything seems back to normal. See also the billions invested by investors in the latest hype: loss-making grocery delivery companies like the German Gorillas – which is regularly compared with WeWork.
Read more about Gorillas: ‘Growing pains of a flash delivery man who has come out of the ground’
For Softbank, the failed IPO meant billions went up in smoke. The Japanese investor wrote off nearly half of the $10 billion it had put into WeWork in November 2019, and CEO Masayoshi Son went through the dust in front of his investors. “I overestimated the value of WeWork,” he said. “I learned a hard lesson.”
A passionate artist
Son, who considered Neumann a son and described him as a “passionate artist,” later said he had been misled by the WeWork founder. The tech investor became enchanted by the charms of Neumann, an energetic, charismatic entrepreneur with long hair who walked around the office barefoot. Son, who invests based on intuition, saw in Neumann the same “twinkle” that he observed in Alibaba founder Jack Ma in 2000. The investment in this Chinese online store made Softbank the world’s wealthiest tech investor.
After the stock market flop, Softbank was determined to make WeWork profitable, in order to recoup some of its investment. It was time to turn green apples into red ones, said Son, who often uses imagery in his presentations. To expedite the maturing process, Son put veteran real estate manager Sandeep Mathrani in charge of WeWork to put things in order.
The We Company changed its name back to WeWork, discontinued all non-office rentals, slowed its expansion rate and closed loss-making facilities. The company fired even more people: of the 14,000 employees in 2019, WeWork now has about 4,000 left.
Hard hit by pandemic
The coronavirus hit WeWork and the restructuring hard. The ‘occupancy rate’ of the rental offices fell sharply (to 60 percent), because the one and a half meter measures allowed fewer customers. Last year, despite all kinds of cost savings, WeWork lost more than $3 billion. Now it hopes that after the pandemic, companies will close their own offices and subscribe to flexible workspaces – such as the one at WeWork.
That still seems far away. WeWork’s forecasted revenue of $3.2 billion this year is in danger of not being met. And the losses are still significant: WeWork was already more than $2 billion short in the first quarter of this year. Founder Neumann once again had a hand in this: after a lengthy legal procedure, he received 500 million dollars from Softbank for his shares.
A version of this article also appeared in NRC in the morning of October 21, 2021
WeWork imploded, scrambled and goes public on Thursday
Source link WeWork imploded, scrambled and goes public on Thursday