Markets
WeWork, other coworking companies firm up IPO plans on investor interest
Summary
- Co-working spaces have been an eyecatcher for PE firms in view of their asset-light model, higher returns, and EBITDA margins exceeding 15%.
- Private equity investors have invested in companies such as Awfis, Table Space, Indiqube, and WeWork.
Following the successful listing of Awfis Space Solutions earlier this year, other co-working companies are likely to list on the stock exchanges as demand for flexible office space rises following the slowdown during the covid-19 pandemic.
In addition to Smartworks Coworking Spaces Ltd, which has filed its documents with the market regulator, WeWork India, Simpliwork Offices, IndiQube and Table Space Technologies Pvt Ltd are gearing up for initial public offers, three people with knowledge of the development said.
“Currently, talks are on with investment bankers and appointments will be made soon," a banker said on condition of anonymity, referring to the plans of the three companies. “These IPOs are likely to range from ₹600 crore to ₹1,500 crore."
Peak XV-backed Awfis listed in May this year. The company raised ₹599 crore selling shares in the range of ₹364- ₹383 apiece. Since then, its stock has doubled and closed at ₹757.20 on the National Stock Exchange on Monday.
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This kind of investor interest has encouraged the other co-working companies to list, the people said. Managed campuses and office experiences company Smartworks, which filed its draft red herring prospectus dated 14 August 2024 with the Securities and Exchange Board of India, is aiming at a ₹550 crore IPO, which includes a fresh issuance of shares and an offer for sale by existing investors.
“Interest in this sector remains strong even on the unlisted side. WeWork raised ₹1,200 crore as equity investment for a minority stake in June this year. This was after they had raised close to ₹500 crore in December 2022," said Prashant Rao, director and head of equity capital markets at Anand Rathi Investment Banking. “Table Space was another company that had raised a round in 2022. There are other bootstrapped companies in the co-working space showing high growth potential, attracting investor attention."
While Table Space did not respond to queries seeking comment on its IPO plans, a spokesperson for Simpliwork declined to comment. A response from WeWork was awaited.
Attractive sector
In 2023, Kontor Space, a co-working company, listed on the Indian exchanges.
The co-working space has been an eyecatcher for private equity firms in view of its asset-light model, higher returns on capital employed, EBITDA margins of more than 15% and scalability. PE firms have invested in Awfis, Table Space, Indiqube, and WeWork, among others. In the past couple of years, there have also been some acquisitions - myHQ was bought by Anarock in 2022, Innov8 by Oyo in 2020, and Uncube by Cowrks in 2019.
“Awfis’ successful IPO and Smartworks’ DRHP filing have guided other similar companies like WeWork India, Red Bricks, and BHIVE to plan IPOs in the next 12 to 18 months," said Vijay Agrawal, managing director of Equirus.
Also Read: Will the collapse of WeWork impact co-working in India?
According to Agrawal, companies in this space are growing at 50% to 100% year on year. The sector is transforming from co-working to managing offices for large corporations. The potential for decent returns is attracting investors.
“The drivers of valuation could be the steady growth in the sector of 25% to 50% over the next 5-7 years and improving operating leverages of the companies as they scale up. This will improve their profitability and RoCE, resulting in valuation growth," Agrawal added.
According to a report from real estate consulting and investment firm Anarock in March 2024, the size of the flexible office real estate market across the country is expected to grow aggressively to anywhere from 100 million square feet to 140 million sq. ft by 2030. Currently, it stands at over 55 million sq. ft, it said.
Also Read: Office space leasing revival is subject to conditions
After the pandemic, most organisations have recognised the value of offering employees flexible, tech-enabled modern workspaces with a strong work environment. This has driven a shift from traditional offices to agile, customised, and cost-effective flex spaces.
Sectors such as information technology and information technology-enabled services, banking, financial services, and insurance, consulting, e-commerce, manufacturing, and startups are leading this growing demand.
