REPORT: Adam Neumann Talked Up WeWork To Eventual SPAC Investor
Neumann, who still owns 10% of WeWork, met with Vivek Ranadive in November to sell him on the possibility of taking the coworking operator public with Ranadive's newly formed special-purpose acquisition company, Reuters reports. BowX Acquisition Corp., which Ranadive took public with a $420M capital raise in August, agreed on March 26 to acquire WeWork in a transaction valuing the latter at $9B.
BowX recruited investment giants Starwood Capital Group, Insight Partners, Fidelity, Centaurus Capital and BlackRock to purchase 17% of WeWork as private investments in public equity, or PIPE investments, a common part of SPAC acquisitions. BowX and WeWork initially targeted a $9.9B valuation, but the PIPE investors negotiated it down to $9B and increased their contribution from $500M to $800M, Reuters reports.
Neumann's involvement in the SPAC deal began and ended with the November conversation, which was facilitated by an executive with international bank UBS AG, Reuters reports.
SPACs have exploded in popularity over the past year for much the same reason that they have drawn skepticism: They allow companies to hit the public stock market without the level of regulatory scrutiny required in a traditional IPO. That advantage could look especially appealing to WeWork, which had reached a $47B valuation through private investment before opening its books for an IPO sent its worth crashing down.
Neumann's relationship with SoftBank Group, which owns the controlling interest in WeWork after bailing it out following the IPO attempt, is a fraught one. As part of the bailout deal, SoftBank agreed to pay $3B to WeWork shareholders, including Neumann, but attempted to back out for various reasons. SoftBank settled for a $1.5B deal in February that paid Neumann $500M, which Reuters reports was to clear the way for the SPAC deal.
Even though SPAC acquisitions don't provide the same level of transparency as IPOs, details of WeWork's 2020 performance have become public as a result. Sandeep Mathrani, Neumann's replacement as WeWork CEO, claims the company can reach profitability by the end of this year even though it reported a loss of $3.8B last year, The New York Times reports.
About $1.4B of that loss was chalked up to a write-down of intangible assets, but the company spent $857M of cash in 2020, compared to $448M in 2019, the Times reports. Mathrani had cited spending cuts as a major reason for WeWork's expected profitability.