INVESTMENT BANKING

WE WORK
WeWork is an American commercial real estate company that provides shared
workspaces for technology start-ups and services for other enterprises. Founded in 2010, it is
headquartered in New York City.
WeWork designs and builds physical and virtual shared spaces and office services
for entrepreneurs and companies. At one time, WeWork had more than 5,000 employees in
over 280 locations, spread across 86 cities in 32 countries. In January 2019, the firm
rebranded to The We Company, and its valuation was stated as $47 billion. The Wall Street
Journal noted that upon the release of its public prospectus in August 2019, the company was
"besieged with criticism over its governance, business model, and ability to turn a
profit”. WeWork lost over $2 billion in 2018.
In October 2019, Neumann received close to $1.7 billion from stakeholder SoftBank for
stepping down from WeWork's board and severing most of his ties to the company.

 Funding structure of we work

Aswath Damodaran “dean of valuation,” analysed the start-up’s prospectus filed in August.
Based on that pre-IPO paperwork, it was recorded that WeWork’s equity is worth $14 billion
— about 70% below its latest private market valuation. One key reason for Damodaran’s
scepticism is WeWork’s real estate liabilities. By his estimates, the company has accumulated
a $23.8 billion debt load, including lease commitments.

 Impact on profitability
Investments left WeWork with a net loss in 2018 of $1.9 billion, up from $933 million in
2017 “The hope is that as the company matures, and its leaseholds age, they will turn
profitable, but this is a model built on a knife’s edge that, by design, will be sensitive to the
smallest economic perturbations”. The debt equity ratio of the company is -8.6. A
higher ratio indicates that the company is getting more of its financing by borrowing money,
which subjects the company to potential risk if debt levels are too high. A negative debt to
equity ratio indicates that the company has interest rates on its debts that are greater than the
return on investment. Negative debt to equity ratio implies that company that has
a negative net worth.
  Advice for WeWork as an investment banker
Going public at a significantly lower valuation than $47 billion won’t be good optics for
SoftBank CEO Masayoshi Son, who is trying to raise money for Vision Fund 2. SoftBank is
already underwater with its $7.6 billion investment in Uber, arguably the tech industry’s
biggest blunder of an IPO before the upcoming WeWork debut.