- WeWork’s archrival IWG has agreed to sell its Japanese business for £320 million in cash and an ongoing cut of its revenues.
- Shares in IWG, the world’s largest office-space provider, soared 23% on the news.
- The deal offers IWG an influx of cash, an income stream, a local partner to grow its brand and presence in Asia, and supports its strategy of “capital efficient growth.”
- The deal is good and bad for WeWork, as a major office-space deal bodes well for the US co-working start-up’s expected public listing, but it’s also a warning that IWG isn’t waiting around to be usurped.
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WeWork rival IWG, the world’s largest office-space provider, has agreed to sell its Japanese business to TKP for £320 million in cash and a recurring cut of its future revenues. Investors celebrated by sending IWG shares up 23% on Monday morning.
IWG – short for International Workplace Group – is London-listed and Switzerland based, and has a market capitalization of only £3 billion ($3.9 billion). That pales in comparison to WeWork’s almost $50 billion valuation as a private company.
However, IWG boasts more than 3,300 locations across more than 110 countries, according to its latest annual report, while WeWork operates fewer than 700 locations in 35 countries. IWG also generated £106 million in after-tax profit in 2018, while WeWork’s net loss more than doubled to $1.9 billion.
IWG signed a “master franchise agreement” with TKP, which rents out conference rooms and banquet halls in Japan. If regulators approve the deal, TKP will take over IWG’s 130 co-working centers in the country and secure the exclusive rights to IWG’s Regus, Spaces, and OpenOffice brands in Japan.
TKP has committed to growing and developing IWG’s Japanese business. IWG will provide services and support to TKP including access to its global network, operating platform, and sales and marketing technology, in exchange for a recurring fee linked to the operation’s sales.
IWG’s Japanese business had a “very strong year” in 2018, according to the company’s latest earnings report. Its sales rose by at least 10% to £94 million.
The deal offers IWG an influx of cash, a local partner to grow its brand and operations in Japan and neighboring nations, and an ongoing share of the Japanese operation’s sales. It supports the company’s strategy of “capital efficient growth” by passing on the costs of buying and outfitting buildings.
After more than $10 billion in investment by Japan’s SoftBank, WeWork is estimated to have a market cap of about $47 billion, according to Bloomberg. WeWork is also growing much faster: it more than doubled its sales to $1.8 billion in 2018, while IWG grew its revenue by less than 10% to about £2.5 billion.
IWG put itself up for sale last year and held talks with three private-equity companies, but it failed to reach a deal. The lack of interest surprised investors given the hype around WeWork, the US start-up that rents out trendy co-working spaces.
The successful sale of IWG’s Japanese business is both good and bad for WeWork: a major office-space deal could mean plenty of demand for the US co-working start-up’s shares when it joins the public markets, but it’s also a warning that IWG isn’t waiting around to be usurped.