Money-Losing, Scaled-Back WeWork Goes for SPAC Route

Posted on 03/26/2021


WeWork agreed to sell itself to a blank-check company BowX Acquisition Corp. (NASDAQ: BOWX, BOWXU and BOWXW) in a deal to take the troubled office-sharing startup public almost two years after a high-profile failed listing. The transaction values WeWork at an initial enterprise value of approximately US$ 9 billion. The transaction will provide WeWork with approximately US$ 1.3 billion of cash which will enable the company to fund its growth plans into the future. BowX Acquisition Corp. is a Special Purpose Acquisition Company formed by management of Bow Capital, including Vivek Ranadivé, and Murray Rode. Ranadivé has four decades of experience and is founder and managing director of Bow Capital, as well as previous founder and CEO of TIBCO.

Since 2019, WeWork made strides to lower company expenses, have exits of non-core businesses, and material portfolio optimization. Over the course of 2020, WeWork improved its free cash flow by US$ 1.6 billion through cost cutting measures including reducing SG&A expenses by US$ 1.1 billion and trimming building operating expenses by US$ 400 million.

As of December 2020, WeWork exited 106 pre-open or underperforming locations and executed over 100 lease amendments for rent reductions, deferrals, or tenant improvement allowances resulting in an estimated US$ 4.0 billion reduction in future lease payments. Enterprise companies now make up more than 50% of WeWork’s memberships, up from just 10% in 2015. Only 10% of WeWork’s members have month-to-month commitments, while more than 50% have commitments longer than 12 months, contributing to an average full commitment term of well over 15 months.

The transaction will be funded with BowX’s US$ 483 million of cash in trust (assuming no redemptions from the trust account by public investors of BowX) in addition to a fully committed US$ 800 million private placement investment at $10.00 per share led by leading investors including Insight Partners, funds managed by Starwood Capital Group, Fidelity Management & Research Company LLC, Centaurus Capital, and funds and accounts managed by BlackRock.

Upon closing, it is expected that the company will have approximately US$ 1.9 billion of cash on the balance sheet and total liquidity of US$ 2.4 billion (assuming no redemptions from the trust account by public investors of BowX), including a US$ 550 million senior secured notes facility to be provided by SoftBank Group. The transaction, which has been unanimously approved by the Boards of Directors of WeWork and BowX, is expected to close by the third quarter of 2021, subject to receipt of BowX stockholder approval, and the satisfaction of other customary closing conditions. After the transaction closes, representatives of SoftBank Group and SoftBank Vision Fund, independent or acting together, will comprise a minority number of the nine board seats.

Excluding the China company, WeWork had revenue of US$ 3.23 billion in 2019 and US$ 3.21 billion in 2020. Excluding the China company, WeWork had adjusted EBITDA of negative US$ 1.943 billion in 2019 and negative US$ 1.754 billion in 2020.

Sources of Funding
BowX Cash in Trust – US$ 483 million
Expected PIPE proceeds – US$ 800 million
WeWork Rollover Equity – US$ 6.553 billion
Existing WeWork Cash – US$ 665 million

Advisors

PJT Partners is acting as sole financial advisor and Skadden, Arps, Slate, Meagher & Flom LLP is acting as legal counsel to WeWork. UBS Investment Bank is acting as sole financial and capital markets advisor to BowX. Cooley LLP is acting as legal counsel to BowX.

UBS Investment Bank and PJT Partners are acting as joint placement agents with respect to the private placement. Paul Hastings LLP is acting as placement agent counsel.

Morrison & Foerster LLP is acting as legal counsel to SoftBank Group.

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