With its valuation in question, is WeWork’s IPO really a good idea?
Yes – Andrew Boyle is founder and chief executive of LGB & Co.
WeWork’s objectives of establishing a dominant market position and global brand demand substantial funding, so an IPO makes sense from the firm’s perspective. For investors, it offers a chance to gain exposure to a business bridging the requirements of landlords who require long leases and growth companies that require flexible space.
WeWork is also creating a valuable ecosystem for startups, where they can attract staff and share resources and experiences. Having started my own business in the graveyard of a Regus office, I understand how important the vibrancy of WeWork can be.
Over the coming decade, 4.5m new businesses will be established in the UK alone, creating increasing demand for “space as a service”. The path to profitability is a concern, but at some point WeWork will raise prices or find other ways of monetising its customer base, operating platform, and data.
The keys to the success of the IPO are valuation and corporate governance. The dramatic shift in price talk suggests that a proper engagement with investors is underway, and that appropriate terms might be found.
No – Giles Fuchs is co-founder and chief executive at Office Space in Town.
WeWork is planning to list as a tech company, yet it is much more similar to a real estate business. Unlike tech firms – which, after investing heavily to create their disruptive product or service, see costs fall – WeWork has to bear significant maintenance and other costs of the buildings it acquires.
WeWork is also seeking a valuation based on earnings before interest, taxes and amortisation (Ebita), yet a yield basis (typical in the property sector) would be more appropriate.
And there is a comparator: UK-listed IWG (Regus). While IWG is profitable, has a 30-year track record, and pays dividends, WeWork is less than a decade old, has recorded consistent losses, and pays none.
If IWG were valued on a yield basis, it would probably be not far from the norm for the flexible workspace sector of around five or six per cent. Given the disparity between the two operators’ track records, it could be argued WeWork should be valued on a much higher yield, which would leave it struggling to reach its IPO valuation target. Of the two, I know which IPO I would be backing.