WeWork’s IPO debacle might delay Indian affiliate acquisition

WeWork filed regulatory filing in mid-August but had to push its IPO after investors questioned company valuation and work ethics.

Photo by Eloise Ambursley on Unsplash

Postponing SoftBank-backed WeWork’s much-hyped IPO (initial public offering) is not just weighing down on the office rental giant’s expected valuation, but could also adversely affect its plan to acquire its Indian affiliate WeWork India, according to local media Mint citing two people familiar with the development.

One of the two sources said the acquisition of its India operation will depend on when WeWork goes public, and will most likely be pushed to next year.

WeWork’s global parent company We Co. has intentions of buying 70% stake in WeWork India in a cash and stock deal valued at USD 2.75 billion. If the IPO had materialized as expected by the coming week, the remaining 30% stake would have been held by WeWork India’s holding company Embassy Buildcon Llp. WeWork India was established in 2017 as a franchise agreement with Jitu Virwani led Indian real estate major, Embassy Group.

“Since the IPO is delayed, the subsequent acquisition will now only happen after that. Embassy will continue to run the business in India as it is currently doing,” one of the people said.

After being valued at USD 47 billion as recently as January 2019 post SoftBank’s infusion of two billion dollars,  WeWork’s valuation has since nosedived to around USD 15 billion, owing to its delay in going public.

The announcement about the delay in going public from the Adam Neumann led company was not a big surprise. For months now the company has been in the line of fire battling the ire of its investors over the firm’s business model, corporate governance, and valuation.

Its eagerly and widely awaited IPO expected to generate billions of dollars was supposed to have happened next week, with a roadshow to market its shares scheduled for September 17th, 2019. However, the whole exercise has been postponed by 2 months.

These unfolding events where big technology startups like WeWork stumbled pre-IPO and ride-hailing apps like Uber Technologies and Lyft struggled after going public in 2019 have triggered investors to question their huge losses, thus pricking the startup bubble. It appears that inflated private market valuations and limitless funding of loss-making enterprises will now drastically reduce.

The rapid developments put a question mark on whether the nine-year-old WeWork can have a successful inning as a public company. Its investors are doubting its future growth with its losses of USD 1.6 billion being just under a revenue figure of USD 1.8 billion. SoftBank which has been hit after the no-show from WeWork, wants the IPO to happen only next year according to the Wall Street Journal.

The Indian arm of WeWork has 23 co-working centers in the country, nine each in India’s Silicon-Valley—Bengaluru and its business capital Mumbai; and five in Gurugram, adding up to a total of 39,000 seats. The company has plans to double this figure within the next six months. Worldwide WeWork is present in 528 locations across 111 cities in 29 countries.

WeWork’s IPO debacle caused majorly due to inflated valuation, mirrors many Indian unicorns that are eyeing an IPO in the near future. “The consumer internet unicorns still don’t have great unit economics, so an IPO by any of them looks highly unlikely for the next two to three years,” Anand Lunia, founding partner at VC firm India Quotient told Mint. India’s most valuable unicorns Paytm, Oyo, Ola, Byju’s, Swiggy, and Zomato are all fret with long term challenges that make their quest for IPO restricted to paper.