Delay In WeWork IPO To Affect Its Investment In WeWork India Franchisee

SUMMARY

WeWork IPO has been postponed till the next month

WeWork parent company was in talks to buy 70% in its Indian franchisee

WeWork India is run on a franchisee model, controlled by Embassy Buildcon LLP

Postponing of WeWork’s IPO will reportedly delay the coworking company’s plan to acquire a majority stake in WeWork India, according to a media report which cited two sources close to the development.

Earlier this week, WeWork’s IPO was reportedly postponed till October. This move came on the heels of multiple company investors questioning its worth and expressing concerns about WeWork’s corporate governance.

Launched in September 2017, WeWork India operates on a brand franchisee model controlled by Embassy Buildcon LLP. Recent media reports have suggested that WeWork was in talks to buy around 70% of WeWork India at a valuation of about $2.75 Bn.

“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,” a source reportedly told Mint.

WeWork IPO was expected to have made it easier for Embassy group to raise funds in India, as it could have given clarity on the company’s valuation. “For instance, if WeWork receives a valuation of $15 Bn, India affiliate would be valued at around $3 Bn,” they added.

In 18 months, WeWork India has grown to have 25K members in 21 locations in Bengaluru, Delhi and Mumbai. The India unit is projected to grow to 90K seats by March next year. The company has also lined up expansion plans across Chennai, Hyderabad and Pune in the second half of 2019.

Earlier in August, Embassy Buildcon was reported to have pledged 26% stake in the coworking company to raise debt capital of INR 200 Cr.(about $27.7 Mn) from ICICI Bank.

The Controversy Around WeWork IPO

Ever since the company filed for its initial public offering (IPO), it has faced flak for losses and its vague business structure and model. Many have raised questions what makes WeWork a tech company, which is what has driven up its valuation. And in the latest blow to WeWork’s IPO plans, its biggest investor SoftBank has reportedly suggested that the company put the brakes on going public.

A Financial Times report quoted people briefed on the discussions to say that SoftBank’s enthusiasm for a listing has waned as bankers have slashed the valuation they believe WeWork can attain when it lists. We Co and WeWork CEO Adam Neumann reportedly flew to Tokyo to meet Softbank CEO Masayoshi Son to discuss these options. The suggestion of shelving IPO plans seems to be part of the same discussion.

Earlier this month, WeWork was reported to be seeking a valuation of $20 Bn-$30 Bn through its public listing. Interestingly, WeWork’s institutional investors had valued the company at $47 Bn.

WeWork has reported a net loss attributable to the company of $689.7 Mn in the six months ended June 30, compared with a loss of $628.1 Mn a year earlier. In the same period, revenue more than doubled to $1.54 Bn.