WeWork’s $9bn Planned Merger with BowX

By Vinay Naik, Ratish Singh, Hirishika Rajasekaran and Luc Roberts (University of Warwick), Lucy Chen and Jessica Tang (University of Melbourne)

 

Overview of the deal


Acquirer: BowX Acquisition Corp. (NASDAQ: BOWX)

Target: WeWork

Total Transaction Size: $9 billion

Closed date: Q3 2021

Acquirer advisor: PJT Partners

Target advisor: UBS


In its second attempt to go public, office-sharing startup WeWork has entered into a definitive merger agreement with special-purpose acquisition company BowX Acquisition Corp. The transaction values WeWork at a pro-format initial enterprise value of approximately $9bn and will provide WeWork with around $1.3bn of cash to fund future growth plans. This valuation is a mere fraction of the original $47bn value claimed by WeWork in the run-up to its 2019 IPO.


The deal will be funded by $483m of cash in trust by BowX along with a fully committed $800m PIPE (Private Investment in Public Equity). The PIPE will be led by investors including Insight Partners, Fidelity Management & Research Company, Centaurus Capital, funds managed by Starwood Capital, and funds managed by BlackRock.


Having opted to delay its IPO two years ago due to poor management decisions and an increasing mountain of debts, WeWork claims to have steered back on track from the $4bn in losses accrued between 2016 and 2019. Within the past year, WeWork has made progress on its ongoing business transformation through a focus on cost management and smart digital innovations. The pandemic has also accelerated the demand for flexible workspaces, allowing for WeWork to be uniquely positioned to serve the multi-trillion dollar global office space market and future of work. With the world slowly opening up after the global lockdown, WeWork’s management believes this could give the company the boost it needs to dominate. WeWork currently has a $4.0bn total sales pipeline and an estimated $1.5bn in committed 2021 revenue.


“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, WeWork CEO

Company Details: (Acquirer - BowX Acquisition Corp)


BowX Acquisition Corp. is a blank check company formed by the management of Bow Capital, a venture capital fund backing the SPAC. In its August 2020 initial public offering, it raised $420 million by offering 42 million shares at $10 each. BowX had planned to target private companies valued between $1 billion and $3 billion in the technology, media, and telecommunications industries.


Founded in 2020, headquartered in Menlo Park, California, USA

CEO: Vivek Ranadivé and Murray Rode

Market Cap: $0.71bn as of 02/04/2021


Company Details: (Target - WeWork)


WeWork is a private American commercial real estate company that specialises in providing innovative and flexible shared workspace solutions for startup companies within the technology industry, as well as services for other enterprises. The company designs and builds both physical and virtual shared spaces and offices.


WeWork gained mainstream publicity after its failed IPO of company stock in 2019, receiving criticism mainly due to its “[corporate] governance, business model and [in]ability to turn a profit.” (The Wall Street Journal)


Founded in 2010, headquartered in New York City, New York, United States of America

CEO: Sandeep Mathrani

Number of employees: 6,000

Market Cap: N/A (Private company)

EV: N/A (Private company)

LTM Revenue: $3.2bn as of 30/06/2020 [Press Release]

LTM EBITDA: ~$(1bn) as of 30/06/2020 [Fitch Ratings]


Projections and Assumptions

Short-term consequences


The announcement of the merger between the American real estate company, ‘WeWork’, and the SPAC, ‘Bow X Acquisition’, alone is bound to have an impact. The share price of the latter has risen from US$11.71 on the day of the announcement to US$12.93, which is its current value. Whilst it is a possible indication of facilitating future deals and acquisitions, with the hope that the share price is not too volatile, t