BowX Acquisition Corp. Agrees to Buy WeWork, Plans to Take Company Public at $9B Valuation
MENLO PARK, CALIF. AND NEW YORK CITY — Flexible office space provider WeWork has entered into an agreement with special purpose acquisition company (SPAC) BowX Acquisition Corp. (NASDAQ: BOWX) to be taken public at an initial valuation of $9 billion.
A SPAC is a business entity with no commercial operations that is formed strictly to raise capital through an initial public offering (IPO) for the purpose of acquiring other companies. Menlo Park, Calif.-based BowX Acquisition Corp. is an affiliate of Bow Capital, a venture capital firm begun by Vivek Ranadive, the founder of TIBCO software and owner of the NBA’s Sacramento Kings.
The transaction, which is expected to close by the third quarter, will provide New York City-based WeWork with approximately $1.3 billion of cash to fund future growth initiatives. The transaction will be funded with BowX’s $483 million of cash in trust, in addition to $800 million in private investment from capital sources such as Insight Partners, funds managed by Starwood Capital Group and others.
SPACs have recently grown in popularity among private and institutional investors alike as vehicles for taking companies public. According to Forbes, which recently analyzed the U.S. activity of SPACs, these entities raised as much as capital in IPO deals in 2020 as they had for every IPO deal combined over the preceding decade.
WeWork, the coworking pioneer that originally opened its first concept more than a decade ago in New York City, first announced its intent to go public in August 2019. Subsequent investigation into the company’s financials revealed that WeWork’s membership was declining as new competitors entered the coworking space.
WeWork, which at that time operated 528 locations across 29 countries, scrapped its IPO following a severe plunge from its initial valuation of $47 billion and removed founder Adam Neumann from his role as CEO.
A couple months later, Japanese technology conglomerate SoftBank purchased a majority stake in WeWork with an $8 billion investment. The onset of the COVID-19 pandemic created more uncertainty for WeWork, but the company believes that the global health crisis has ultimately accelerated the need for more flexible office workspaces across the world.
“The pandemic has fundamentally changed the way we work,” says Marcelo Claure, executive chairman of WeWork. “WeWork is well-positioned to springboard into a future propelled by digital technology and a new appreciation of the value of flexible workspace.”
Over the last 18 months, WeWork has engaged in numerous cost-cutting measures. Following the collapse of its initial IPO plan, the company laid off some 2,400 employees and has cut the size of its total workforce by 67 percent relative to its peak level in September 2019.
In 2020 alone, WeWork exited more than 100 leases for underperforming spaces and executed another 100 lease amendments for rent reductions, deferrals or tenant improvement allowances. This activity is expected to reduce future lease payments by approximately $4 billion. All told in 2020, WeWork cut its selling, general and administrative expenses by $1.1 billion and trimmed its operating expenses by $400 million.
“WeWork has spent the past year transforming the business and refocusing its core, while simultaneously managing and innovating through a historic downturn,” says Sandeep Mathrani, CEO of WeWork, who will continue to lead the company’s daily operations along with Claure. “Having Vivek and the BowX team will be invaluable to WeWork as we continue to define the future of work.”
The stock price of BowX Acquisitions Corp. opened at $11.53 per share on Monday, March 29 on the heels of the announcement, up from $10 per share six months ago.
— Taylor Williams