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IWG Starts Making Franchising Deals To Expand On The Cheap

The IWG office in One Kingdom Street, London.

The world's biggest provider of flexible office space is well aware that it isn't the most famous.

IWG, which owns coworking brands Regus, Spaces and No. 18, has sold its 130 locations in Japan to TKP Corp., which will operate those locations as a franchisee for IWG, the Wall Street Journal reports. IWG will seek more franchise deals as a way to expand its footprint without having to burn through too much capital, according to the WSJ.

IWG has been managing flexible office space in some form for over three decades, but since WeWork was founded in 2010, it has grown at an incredible pace, spending at eye-watering rates and becoming the industry's brand name in the process (despite changing its own parent company name to The We Company earlier this year).

By the end of last year, WeWork operated 466,000 desks to IWG's 547,344. At the end of 2017, it had fewer than half as many desks as IWG.

WeWork has sustained that growth with billions of dollars in investments led by SoftBank's Vision Fund, which allowed the unicorn startup to run at a $2B loss in 2018. IWG turned a modest profit last year, just as it did in 2017, but its valuation of $3.24B is paltry compared with The We Company's $47B, the WSJ reports.

The franchising strategy is meant to achieve the dual goals of both keeping pace with WeWork and raising brand awareness, Dixon said. Though IWG does not seem to suffer the same long-term viability questions as WeWork, it has struggled to attract investment, failing to close the deal on a sale last year.

It currently is marketing its Spaces brand for sale, Bloomberg reports.

At the most recent year-end earnings call, IWG CEO Mark Dixon told analysts, “It’s clear that we’re not winning that communication battle, looking at how people value us."