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Brookfield Makes Takeover Proposal For World’s Largest Serviced Office Firm

Brookfield Asset Management has made an indicative takeover proposal for IWG, the world’s largest serviced office firm.

If the deal to buy IWG, previously called Regus, goes through, it would see the world’s second-largest property manager complete the biggest deal yet in the booming flexible office sector.

Brookfield Asset Management Chief Executive Bruce Flatt

Brookfield has teamed up with fellow Canadian private equity firm Onex to bid for London-listed IWG. It now has until 20 January to submit a formal offer, but IWG said there is no certainty a formal offer would be made.

IWG has a market capitalization of £2.3B ($3.1B). IWG’s shares jumped 30% after the company confirmed it had received an indicative proposal, even though IWG said there was no certainty about the price Brookfield and Onex were offering.

The joint venture’s bid is partly prompted by IWG’s torrid share price over the past six months, and the company's announcement in October that it would miss profit forecasts for 2017. Since peaking in June, its shares had fallen 45%.

But Brookfield is banking on the flexible office sector and companies that stand to benefit from the change in work preferences.

It is one of co-working behemoth WeWork’s largest landlords globally, having leased multiple offices to the firm in New York, London and Berlin.

It led a $68M fundraising round in May for Convene, the real estate technology company that manages office amenities such as conference rooms, event spaces and gyms on behalf of landlords.

The IWG office in One Kingdom Street, London.

WeWork may have the bigger valuation at $20B, but IWG is by far the bigger company in terms of number of locations — it has more than 3,000 serviced offices in about 1,000 cities across the world.

In 2016 it made a profit of £186M, up from £145M the year before.

Earlier this year Chief Executive Mark Dixon told Bisnow that flexible workspace companies needed to be prepared for the “nuclear bomb” that would hit the sector when the next recession arrived, and that only the largest companies that had taken action to avoid big rent bills when revenue falls would survive.

The takeover proposal from Brookfield might flush out interest from other bidders.

“The approach is from private equity at the moment, but we see potential bidders from a range of parties, including global real estate developers, or those with a global ambition,” analysts at stockbroker Peel Hunt wrote in a note to clients. “IWG is a global brand with established positions in every significant country. It is highly cash generative and minimally financially geared.”

A purchase of IWG by Brookfield would be the latest example of a major real estate investor purchasing a major flexible office/co-working player or setting up their own flexible office business.

Blackstone in 2017 bought a majority stake in The Office Group for £500M, and Carlyle has backed an emerging brand called Uncommon.

Green Street analysts ran the numbers in 2017 and concluded that operating flexible office space is 50% more profitable than leasing it in the traditional manner, but that real estate firms should leave it to the professionals rather than trying to set up their own business.

Brookfield may be on the verge of buying that expertise in.