WeWork put to rest a nagging subject of speculation on Tuesday with the announcement that Adam Neumann, the controversial founder, will step down as CEO. But the office-sharing company left another critical question unanswered: the timing of its planned initial public offering.
Even after everything it's been through lately, WeWork could still go public this year. At least in terms of the bureaucratic barriers needed to hold an IPO, there's not much that stands in the company's way, financial and business experts told Business Insider.
But in reality, WeWork will have to navigate a treacherous calendar if it hopes to pull off an offering this year. And even unburdened of Neumann's reputational baggage, WeWork's biggest challenge remains the one it's had to contend with since making its offering paperwork public in August — investor demand.
"It's all a question about the valuation," said Jay Ritter, a finance professor at the University of Florida who closely studies the IPO market, stating that WeWork will be able to find buyers for its IPO if it's willing to set the price low enough.
Of course, the price that public investors are willing to pay for the company's shares may far too little for SoftBank and WeWork's existing private investors to swallow. And until there's a consensus on that, an IPO will be incredibly tricky in the near term.
"Ultimately, I think that there's a price that this gets done at, in most cases, but is it a valuation that the current investors are willing to take?" said Steve Skolnick, an attorney with Lowenstein Sandler who's helped guide numerous companies through public offerings. "SoftBank is never going get their money back or their value back, at least not initially."
It's an open question where WeWork's IPO goes from here
What comes next for WeWork's prospective IPO has been an open question since the company postponed it last week in the face of resistance from Wall Street. At the time, it said it still planned to complete the offering this year, but already some investors and analysts were skeptical it would be able to pull it off.
And that plan may have been further thrown off track by its big management shakeup on Tuesday. The company announced it's replacing CEO Adam Neumann with two insiders who will share the CEO title — Artie Minson and Sebastian Gunningham, WeWork's former chief financial and chief revenue officers, respectively. While Neumann will remain as WeWork's non-executive chairman, he will no longer have majority control over the company, because it is reducing his votes, and his wife is relinquishing her roles at the commercial real estate giant.
Part of the pushback WeWork has faced from potential investors in its IPO focused on Neumann. A series of deals he was involved in with the company, including selling to it the rights to use the name "We," raised eyebrows. So too did revelations in a Wall Street Journal article last week that he had transported and smoked marijuana on a plane to Israel and frequently served copious amounts of tequila at executive retreats.
A statement released by the WeWork's co-CEOs Tuesday indicated that the company may be backing away from its plan to go public this year, saying they were "evaluating the optimal timing" for that to take place. The company has a big incentive to try to make the deal happen this year — its banks have agreed to loan it $6 billion if it raises $3 billion in an IPO by the end of the year.
WeWork faces a challenging calendar if it wants to list shares in 2019. The next few weeks will bring the Jewish high holidays, a period during which bankers and companies usually refrain from engaging in the IPO process. And the period after Thanksgiving is often considered a no-go for IPOs, with the winter holidays beginning and institutional investors, looking to lock in returns, hesitant to make bets on risky IPOs as the year comes to a close.
That leaves a very small window of time if WeWork wants to press ahead with an IPO in 2019.
If it does decide to go for it, WeWork faces little in the way of bureaucratic obstacles, business experts said. It was primed to start its road show — the series of meetings companies hold with potential investors immediately before selling shares in an offering — last week. To get the process back on track, it would basically just need to file some updated paperwork with the Securities and Exchange Commission that reflect the recent management and governance changes, they said.
"It can start the roadshow as soon as it wants, said Ritter. He continued: "It's not as if they're totally unprepared."
Investors have been skeptical of WeWork
The much bigger barrier WeWork is going to have to confront if it wants to go forward with its IPO is with investor skepticism. The pushback the company faced from potential shareholders encompassed much more than just Neumann's control and conduct. Investors and analysts were also skeptical of WeWork's business model, its ability to survive a recession, and its valuation.
The latest changes likely have raised fresh concerns with investors. Wall Street generally doesn't like uncertainty. By removing Neumann and replacing him with two relatively unknown executives, WeWork has essentially added an uncertainty to its business, said Robert Siegel, a lecturer in management at Stanford Graduate School of Business.
"There's no track record of these two people running this company," Siegel said. "I think it's going to be difficult for Wall Street to get comfortable with it in the next 90 days."
A deal probably could be done at the right price, the experts said. What that price will be and whether WeWork's existing investors would accept it are huge questions.
SoftBank valued WeWork at $47 billion in a funding round in January. But the company repeatedly indicated that it would be willing to accept a much lower market capitalization in its public offering, according to numerous reports. Immediately before pulling its IPO, it reportedly considered going out with a valuation of as little as $10 billion.
$10 billion may be the new ceiling for WeWork's worth
If it tried to go forward with its offering, that valuation may now be the ceiling of its possible worth in discussions with potential investors, said David Erickson, a senior fellow in finance at the University of Pennsylvania's Wharton School of business. The changes WeWork made almost certainly haven't raised it's valuation, at least not in the near-term, he said.
"I don't think valuation's going up" from where it was in WeWork's last conversations with investors, he said. "It's probably going either at that level or down."
SoftBank has already reportedly resisted having WeWork debut with a valuation in the $15 billion to $20 billion range, for fear of having to recognize steep losses on its investments in the company. It may well put up even more of a fight if the valuation drops even farther.
That's why several of the experts said they don't expect the company to go out this year. It likely will want to take the time to get Wall Street comfortable with its new management team and give the new CEOs some time to address the concerns about its business model and sustainability, they said.
"Given all they've gone through, I would think you would want to have a little bit of space to kind of address some of these issues," Erickson said.
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