A yr and a half after its failed IPO try, WeWork is lastly going public. As an alternative of making an attempt a standard IPO once more, the troubled coworking outfit is utilizing a distinct monetary maneuver: merging with a particular function acquisition firm, often known 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 rollercoaster 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 develop 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 manner, WeWork is the quintessential SPAC candidate: It’s a high-profile firm that has had problem going public in any other case. It’s additionally working within the buzzy coworking trade: WeWork primarily leases workplace actual property, makes it look cool, after which subleases that property to corporations and people trying to lease for the quick time period.
There are mixed-signals for the corporate’s monetary outlook. On one hand, WeWork and different shared workplace area corporations 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 $4 billion final yr and about the identical in 2019. BowX Acquisition is at the moment 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. After all, it had traded beneath $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 standard manner for corporations to go public. Certainly, this yr is on observe for a file variety of SPAC corporations itemizing on the inventory market. The Journal reported that almost 300 SPACs have public thus far in 2021, elevating $93 billion. In most years, that’s greater than the annual whole for IPOs, each conventional and SPAC. Simply this morning the Wall Road Journal additionally reported that media startups Axios and the Athletic are additionally hoping to merge and go public by way of a SPAC.
Wait, what are SPACs once more?
SPACs are shell corporations that go public with the categorical function of elevating cash to purchase personal corporations — successfully bringing personal corporations public a lot quicker than in the event that they have been to do a standard 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. Meaning they’re a comparatively protected funding if folks purchase them round that value. Nevertheless, a slew of latest SPACs traded a lot larger. The SPAC that bought electrical automotive firm Lucid traded larger than $60 earlier than saying the merger, after which the value precipitously declined.
And SPACs have seen elevated demand due to an inflow of retail buyers — common folks investing in corporations by way of apps like Robinhood. Whereas this pattern democratizes entry to the inventory market, critics say it’s additionally democratizing the flexibility to lose numerous cash. Put up-merger SPACs have traditionally underperformed common IPO shares. An index of SPACs, which reached a peak in February, has seen a selloff in latest days in anticipation of extra scrutiny by the US Securities and Change Fee.
The flurry of SPACs — lots of them led by high-profile sponsors and even celebrities —means there’s numerous cash on the market with which to merge with personal corporations — extra maybe than there are good corporations to purchase.
As College of Florida professor and IPO knowledgeable 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 enticing mergers.”
