WeWork Does Not Pass Go and Collect its IPO Proceeds
In the last few weeks, so much has transpired in the WeWork universe that it is hard to keep track. Rather than catalogue the happenings in this post, we intend to identify WeWork’s most likely options to stem the bleeding and ensure the company remains a going concern. We already covered what to make of WeWork’s postponed IPO, but now, with the company against the ropes, it seems apropos given most of our readers’ exposure.
The IPO is Off
What does it mean that the IPO is off? In the simplest terms, WeWork will not be able to raise money from public investors anytime soon. WeWork has not made money despite its aggressive expansion. Historically it was able to raise money in private markets to fund its growth, but given what we know now, it is unlikely that many private investors can be convinced to invest in WeWork unless it makes significant steps to curtail losses.
In WeWork’s current state, it cannot generate a profit soon. But at its current burn rate, it may have less than twelve month’s cash on hand to sustain operations. That means it must cut costs and restructure. What might we expect to see?
Cost Cutting
WeWork removed Adam Neumann from the CEO position and replaced him with two internal promotions, Sebastian Gunningham and Artie Minson, as the company searches for a permanent new leader. With Mr. Neumann out, the new leaders are likely to have more liberty to objectively evaluate WeWork’s diverse business lines to begin cutting costs. The first and most likely cuts will come from headcount, with reports of the company pushing out twenty of its senior leaders. Beyond these initial cuts, WeWork will likely need to make deep cuts to its staff. Headcount expenses are among the easier to make, but WeWork will need to find additional cost synergies by shedding business lines and locations.
Finding New Partners
Reports indicate it put the company plane on the block. But again, this will not be enough. WeWork will almost certainly need to both raise capital and cut costs at the same time. This can most clearly be done by offloading its obligations on newer locations and locations in development. There are many ways this could play out, but this approach benefits the company in two ways: one, it cuts its costs; and two, it has the potential to raise new capital. WeWork will want to hold on to its mature and stabilized locations that generate positive cash flow, but all other locations could be up for grabs. For the remaining locations, the company may look to forge partnerships with its existing landlords, or it may find a new operator (or operators) to assume the obligations where leases allow for permitted transfers.
Could WeWork be a Memory?
The possibility of WeWork’s collapse is a paramount concern for most landlords. Most WeWork leases have significant remaining term, and a bankruptcy would likely tie up assets and limit existing landlords’ options. If it does file bankruptcy protection, it would likely look to restructure through Chapter 11 (in the United States), likely resulting in a sequel to the Regus bankruptcy of 2003. In that case, many landlords renegotiated leases with the company. If WeWork does not cut sufficient costs or find new investors, this is a possible scenario.
