WeWork Going Public In SPAC Deal With BowX Acquisition In $9 Billion Deal

By Amit Chowdhry ● March 26, 2021
  • Leading flexible space provider WeWork and BowX Acquisition Corp. (NASDAQ: BOWX, BOWXU and BOWXW), a special purpose acquisition company (SPAC), announced today that they have entered into a $9 billion definitive merger agreement. These are the details.

Leading flexible space provider WeWork and BowX Acquisition Corp. (NASDAQ: BOWX, BOWXU and BOWXW), a special purpose acquisition company (SPAC), announced today that they have entered into a definitive merger agreement, providing for a business combination that will result in WeWork becoming a publicly listed company. The deal values WeWork at an initial enterprise value of approximately $9 billion. The transaction will provide WeWork with approximately $1.3 billion of cash which will enable the company to fund its growth plans into the future.

Marcelo Claure and Sandeep Mathrani will continue to lead WeWork as Executive Chairman and Chief Executive Officer, respectively, along with the rest of the company’s highly experienced leadership team. And following the closing, Vivek Ranadivé of BowX and Deven Parekh of Insight Partners will join the company’s Board of Directors.

Since 2019, WeWork made significant progress towards transforming its business through a strategic plan that included robust expense management efforts, exits of non-core businesses, and material portfolio optimization, which contributed to a dramatically improved cost structure. And over the course of 2020, WeWork improved its free cash flow by $1.6 billion through cost-cutting measures including reducing SG&A expenses by $1.1 billion and trimming building operating expenses by $400 million. The company also exited all of its non-core ventures and streamlined its headcount by 67% from its peak in September 2019. Now WeWork is a more focused company built around a core flexible space business that is poised for substantial growth.

As of December 2020, WeWork exited 106 pre-open or underperforming locations and executed over 100 lease amendments for rent reductions, deferrals, or tenant improvement allowances resulting in an estimated $4.0 billion reduction in future lease payments. After its strategic asset exits, WeWork retains an unmatched scale and value proposition worldwide thanks to its 851 locations in 152 cities, totaling over 1 million workstations. And enterprise companies now make up more than 50% of WeWork’s memberships, up from just 10% in 2015. Only 10% of WeWork’s members have month-to-month commitments while more than 50% have commitments longer than 12 months, contributing to an average full commitment term of well over 15 months.

During the COVID-19 pandemic, WeWork’s strong business model has demonstrated resilience in an unprecedented downturn. The company’s 2020 revenue, excluding China, was $3.2 billion, which is flat compared to 2019, even after exiting non-core businesses and despite significant headwinds from COVID-19. And during the transformation, WeWork continued to redefine the flexible workplace market by digitizing its global physical network. As traditional landlords look to embrace the flexible model that WeWork pioneered and the market is demanding, the company will be well-positioned to offer landlords an asset-light technology platform for managing and orchestrating flexible space.

Going forward, WeWork is intending to expand beyond its core business through its On Demand, All Access, and Platform offerings, enabling users to choose from their WeWork mobile app when, where, and how they work. And demand from landlords and members remains strong. Now WeWork has a $4 billion total sales pipeline and an estimated $1.5 billion in committed 2021 revenue.

Details About The Deal

The deal will be funded with BowX’s $483 million of cash in trust (assuming no redemptions from the trust account by public investors of BowX) in addition to a fully committed $800 million private placement investment at $10 per share led by leading investors including Insight Partners, funds managed by Starwood Capital Group, Fidelity Management & Research Company LLC, Centaurus Capital, and funds and accounts managed by BlackRock.

And upon closing, it is expected that the company will have approximately $1.9 billion of cash on the balance sheet and total liquidity of $2.4 billion (assuming no redemptions from the trust account by public investors of BowX), including a $550 million senior secured notes facility to be provided by SoftBank Group.

The deal – which has been unanimously approved by the Boards of Directors of WeWork and BowX – is expected to close by the third quarter of 2021, subject to receipt of BowX stockholder approval, and the satisfaction of other customary closing conditions.

The post-transaction 9-member board will be majority independent with the initial board comprised of Mathrani and individuals designated by a variety of new and existing investors to ensure WeWork remains disciplined and aligned with shareholder interests. And after the deal closes, representatives of SoftBank Group and SoftBank Vision Fund, independent or acting together, will comprise a minority number of the nine board seats.

KEY QUOTES:

“WeWork has spent the past year transforming the business and refocusing its core, while simultaneously managing and innovating through a historic downturn. As a result, WeWork has emerged as the global leader in flexible space with a value proposition that is stronger than ever. Having Vivek and the BowX team will be invaluable to WeWork as we continue to define the future of work.”

— Sandeep Mathrani, CEO of WeWork

“I’m thrilled to partner with Sandeep, Marcelo and the entire WeWork team as they continue to transform this business and the real estate industry at large. This company is primed to achieve profitability in the short-term, but the added long-term opportunity for growth and innovation is what made WeWork a perfect fit for BowX. With a fantastic core business, I see WeWork as a company at an inflection point, with an incredible roster of key members coupled with the vision and leadership to digitize an enormous industry.”

— Vivek Ranadivé, Chairman and Co-CEO of BowX Acquisition Corp.

“SoftBank has always seen the potential in WeWork’s core business to disrupt the commercial real estate industry and reimagine the workplace. Today, we take another step towards making that vision a reality. The pandemic has fundamentally changed the way we work, and WeWork is incredibly well positioned to springboard into a future propelled by digital technology and a new appreciation of the value of flexible workspace. We look forward to having BowX as our partner as we look to the next chapter.”

— Marcelo Claure, Executive Chairman of WeWork

“The commercial real estate industry has experienced a seismic shift and the future of work is now being redefined in real time. WeWork is the leader in flexible space, with a globally recognized brand.”

— Barry Sternlicht, Chairman and CEO of Starwood Capital Group

“With COVID accelerating the adoption of flexible workspace around the globe, WeWork is uniquely positioned to meet rising demand in a dynamic market. As leaders in growth investing across technology and software, we are excited to bring our decades of experience to further accelerate WeWork’s expanding digital platform.”

— Deven Parekh, Managing Director at Insight Partners

Disclaimer: This content is intended for informational purposes. Before making any investment, you should do your own analysis.