A year and a half after its failed IPO attempt, WeWork finally goes public. Rather than retrying a traditional IPO, the struggling coworking team is using a different financial maneuver: merging with a special-purpose acquisition company, known as SPAC. The deal, which values WeWork at $ 9 billion, including debt, represents a small shutdown for a company that has been on a roller coaster ride for a few years, going from a $ 47 billion tech darling to a warning. It also highlights how frantic the SPAC fever has become.
The Wall Street Journal first confirmed on Friday that the company will merge with BowX Acquisition, sponsored by SPAC Bow Capital Management and led by Sacramento Kings owner and Tibco Software founder Vivek Ranadivé. In a way, WeWork is the quintessential SPAC candidate – it’s a high-profile company that has struggled to go public. It’s also operating in the bustling coworking industry: WeWork essentially rents office real estate, makes it look good, and then subleases that property to businesses and individuals looking to rent short-term.
There are mixed signals for the company’s financial prospects. For one thing, WeWork and other shared office space companies could thrive in the aftermath of the pandemic as companies reconsider their traditional office leases and opt for more flexible solutions. On the other hand, WeWork posted a loss of nearly $ 4 billion last year and roughly the same in 2019. BowX Acquisition is currently trading at $ 10.72, more than the standard $ 10 at which SPACs go public and a sign that this could be a popular acquisition. However, it had previously traded below $ 10 when there was already speculation about the WeWork merger.
SPAC mergers, such as WeWork and BowX Acquisition, are an increasingly popular way for companies to go public. This year is on track for a record number of publicly traded SPAC companies. The Journal reported that nearly 300 SPACs have gone public so far in 2021, raising $ 93 billion. In most years, that’s more than the annual total of IPOs, both traditional and SPAC. This morning, the Wall Street Journal also reported that media startups Axios and Athletic hope to merge and go public through a SPAC.
Wait, what are SPACs again?
SPACs are shell companies that are publicly traded for the express purpose of raising money to buy private companies, effectively making private companies go public much faster than if they made a traditional initial public offering.
To be successful, a SPAC must merge with a private company within two years or return investors’ money. A part of a SPAC generally costs $ 10, and buyers can get their money back if they don’t like the final fusion. That means they are a relatively safe investment if people buy them for that price. However, a large number of recent SPACs traded much higher. The SPAC that the Lucid electric car company bought traded at more than $ 60 before announcing the merger, after which the price plummeted.
And SPACs have seen an increase in demand due to an influx of retail investors – ordinary people investing in companies through apps like Robinhood. While this trend democratizes access to the stock market, critics say it is also democratizing the ability to lose a lot of money. Post-merger SPACs have historically underperformed regular IPO stocks. A SPAC index, which peaked in February, has seen a sell-off in recent days in anticipation of increased scrutiny by the US Securities and Exchange Commission.
The onslaught of SPAC, many of them run by high-profile backers and even celebrities, means there is a lot of money to merge with private companies, perhaps more than there are good companies to buy.
As University of Florida professor and IPO expert Jay Ritter recently told Recode: “Now there is so much money chasing deals that it will be increasingly difficult to achieve attractive mergers.”