The troubled co-working firm, now valued at $9 billion, is driving the SPAC growth to the general public markets.
A 12 months and a half after its failed IPO try, WeWork is lastly going public. As an alternative of attempting a conventional IPO once more, the troubled coworking outfit is utilizing a unique monetary maneuver: merging with a particular function acquisition firm, referred to as a SPAC. The deal, which values WeWork at $9 billion together with debt, represents a little bit of closure for a corporation that has had a curler coaster few years, going from a tech darling valued at $47 billion to a cautionary story. It additionally highlights simply how frenzied the SPAC rush has change into.
The Wall Road Journal first confirmed on Friday that the corporate is merging with BowX Acquisition, sponsored by SPAC Bow Capital Administration and run by Sacramento Kings proprietor and Tibco Software program founder Vivek Ranadivé. In a method, WeWork is the quintessential SPAC candidate: It’s a high-profile firm that has had issue going public in any other case. It’s additionally working within the buzzy coworking trade: WeWork basically leases workplace actual property, makes it look cool, after which subleases that property to firms and people trying to hire for the quick time period.
There are blended alerts for the corporate’s monetary outlook. On one hand, WeWork and different shared workplace area firms might thrive post-pandemic as companies rethink their conventional workplace leases and go for extra versatile options. On the opposite, WeWork posted a lack of practically $four billion final 12 months and about the identical in 2019. BowX Acquisition is presently buying and selling at $10.72 — greater than the usual $10 that SPACs go public at and an indication that this may very well be a well-liked acquisition. Nonetheless, it had traded under $10 earlier when the WeWork merger had already been speculated.
SPAC mergers, just like the one between WeWork and BowX Acquisition, are an more and more well-liked method for firms to go public. This 12 months is on observe for a file variety of SPAC firms itemizing on the inventory market. The Journal reported that just about 300 SPACs have gone public up to now in 2021, elevating $93 billion. In most years, that’s greater than the annual complete for IPOs, each conventional and SPAC. Simply this morning, the Wall Road Journal additionally reported that media startups Axios and the Athletic are hoping to merge and go public by way of a SPAC.
Wait, what are SPACs once more?
SPACs are shell firms that go public with the specific function of elevating cash to purchase personal firms — successfully bringing personal firms public a lot sooner than in the event that they had been to do a conventional IPO.
To achieve success, a SPAC must merge with a personal firm inside two years or return buyers’ cash. A share of a SPAC usually prices $10, and patrons are allowed to get their a reimbursement in the event that they don’t just like the eventual merger. Which means they’re a comparatively secure funding if individuals purchase them round that value. Nonetheless, a slew of current SPACs traded a lot greater. The SPAC that bought electrical automotive firm Lucid traded greater than $60 earlier than asserting the merger, after which the value precipitously declined.
And SPACs have seen elevated demand due to an inflow of retail buyers — common individuals investing in firms via apps like Robinhood. Whereas this pattern democratizes entry to the inventory market, critics say it’s additionally democratizing the power to lose plenty of cash. Publish-merger SPACs have traditionally underperformed common IPO shares. An index of SPACs, which reached a peak in February, has seen a selloff in current days in anticipation of extra scrutiny by the US Securities and Trade Fee.
The flurry of SPACs — a lot of them led by high-profile sponsors and even celebrities —means there’s plenty of cash on the market with which to merge with personal firms — extra maybe than there are good firms to purchase.
As College of Florida professor and IPO professional Jay Ritter instructed Recode lately, “There’s now a lot cash chasing offers, it’s going to be more durable and more durable to drag off engaging mergers.”