BackWeWork IPO postponed, $2.75-bn India unit deal faces delays
We Co. may seek a valuation between $10 bn and $12 bn for its IPO, less than the $47 bn valuation it achieved in JanHolding firm Embassy plans to raise fresh capital to fund WeWork’s India operations and expand its presence
PremiumBengaluru: We Co.’s decision to postpone its much-awaited initial public offering (IPO) will also likely delay a plan to acquire majority control of its Indian affiliate to next year, said two people familiar with the development.
Earlier this year, We Co. offered to buy a 70% stake in WeWork India in a cash and stock deal valued at $2.75 billion, three years after it entered the country through a brand franchise agreement. Embassy Buildcon Llp, the holding company of WeWork India that is owned by Embassy Group chairman Jitu Virwani, would hold the remaining 30% stake once the deal goes through.
Since its first regulatory filing in mid-August, the New York-based office rental company has faced questions from investors over its business model, corporate governance, valuation and how its founder Adam Neumann runs the company. A Reuters report last week said We Co. might seek a valuation between $10 billion and $12 billion for its IPO, far lower than the $47 billion valuation it achieved in January when SoftBank invested $2 billion in it.
On Monday, the firm, which is backed by Japan’s SoftBank Group, said: “The We Co. is looking forward to our upcoming IPO, which we expect to be completed by the end of the year. We want to thank all of our employees, members and partners for their ongoing commitment."
Though the offer was made by WeWork earlier this year, “the stake acquisition will only happen after it launches the IPO to raise funds", said one of the two people cited earlier.
“Since the IPO is delayed, the subsequent acquisition will now only happen after that. Embassy will continue to run the business in India as it is currently doing," the person said, requesting anonymity.
Spokespeople for WeWork India and Embassy Group declined to comment.
Co-working firms have largely been self-funded, with some external investments, creating 350-400 operators of different sizes offering products at varying price points in India. The next phase of growth and survival will depend on the capital they raise, operational efficiency and investor confidence. WeWork’s share sale may drive future funding, valuation and growth in India’s emerging flexible working ecosystem.
Over the next few months, Embassy plans to raise fresh capital to fund WeWork’s India operations and expand its presence. The company has 23 co-working centres—nine each in Bengaluru and Mumbai, and five in Gurugram—comprising 39,000 desks or seats. The plan is to more than double this number by March.
“The WeWork IPO would have made it a lot easier to raise funds in India because it would help establish the valuation, giving more clarity to investors and helping Embassy in the process. Even if the valuation drops, still it would benefit the fundraising because currently no one can really determine the value correctly," the second person said on condition of anonymity. For instance, if WeWork receives a valuation of $15 billion, the India affiliate would be valued at around $3 billion, the person said.
Unlike other Asian markets such as China and Japan, We Co. operates on a revenue and profit-sharing model with its Indian partner. Currently, WeWork India centres are profitable on an individual basis, but it is yet to turn profitable at the company level, which may happen by this fiscal-end.
We Co. posted a loss of around $689.7 million and revenue of $1.54 billion in the first six months of 2019. Globally, We Co. is present in 528 locations across 111 cities in 29 countries.
According to its IPO filing, the company earned $3.5 million in management fees in the six months ended 30 June, a sharp rise from $1.6 million in the year-ago period.
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