WeWork’s failed IPO
Who is WeWork? WeWork is an American commercial real estate company that provides shared workspaces for established enterprises and growing start-ups. They offer a range of products from private offices to shared workspaces and are host to Standard Chartered Bank and Royal Bank of Canada.
Why are they important? The company underwent the 2nd largest IPO of 2019, trailing only Uber, valued at $47 billion. However, this valuation was more than 10x its nearest competitors’ and received outcry from critics who commented on the company’s weak corporate governance practices and unoriginal business model. The predictions were not optimistic, and rightfully so. Two months after the company’s IPO, the shared office company is battling to avoid bankruptcy. This outcome reflects the company’s extremely high-risk strategy. They took on expensive long-term leases that would be very difficult to accommodate if things took a downturn while showing little evidence of their $47 billion valuation by the private market. It seems like venture capital investors were banking on a guise.
What could this failed IPO mean? The impacts of WeWork’s IPO dangerously shadows happenings in the 1980s when the Leveraged Buyout of United Airlines collapsed, precipitating a US market crash that morphed into a recession. The events leading up to the United Airlines incident are technical but can be summed up as a display of investors entering high-risk deals with the hope of securing high profit. Investors in WeWork displayed similar tendencies, and the company’s fate should act as a reminder of the virtues of caution.
