After facing months of deadlock, WeWork, the office space retailer, has finally reached a resolution with a group of 18 landlords. These landlords had insisted on receiving full rental payments for their abandoned leases, and an agreement had now been reached to address this issue. SoftBank put forward a proposal to allocate a maximum of USD$ 682.5 million towards new credit facilities, serving as a safeguard for the rent obligation. Nevertheless, certain landlords insisted that SoftBank should provide additional funds upfront as a component of the agreement. However, a group of 18 landlords later informed Reuters that WeWork and SoftBank had revised the agreement to meet their expectations.
Source: Visual Capitalist, 2023
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While having a peak valuation of USD$ 47 billion in January 2019, WeWork has its valuation declined by more than 98% since went public in October 2021. WeWork’s collapse into bankruptcy serves as the culmination of a long-running saga for the company. WeWork accumulated a substantial amount of debt, estimated in the tens of billions of dollars, in order to build its extensive portfolio of leased office spaces. According to Bloomberg, SoftBank had invested $17 billion in the company as of 2021.
However, the demand for shared office spaces was shrinking and could not match the scale of WeWork’s acquisitions. In the aftermath of the pandemic, the widespread adoption of work-from-home policies has been accompanied by a significant increase in global interest rates over the past year. Since last year, however, the Federal Reserve has raised interest rates at the fastest pace in more than two decades, making borrowing more expensive for businesses and consumers alike. These factors have amplified the risks faced by the company. The lack of tenants also resulted in an inability for WeWork to offset the resulting losses or meet their significant rental obligations.
WeWork’s story is a lesson for startups: sustainable profitability matters more than inflated valuations. It emphasizes the need for ethical leadership, responsible investing, and sustainable growth for long-term success.
It is also telling the truth that when it comes to acquiring a business, it is crucial not to solely rely on the valuation figure but also to consider qualitative factors. Qualitative factors encompass various aspects such as the company’s brand reputation, customer loyalty, employee expertise, operational efficiency, and growth potential. These factors can significantly impact the long-term success and sustainability of the acquired business. By looking beyond the numbers and analysing qualitative aspects, potential risks and opportunities can be identified, enabling a more comprehensive evaluation of the acquisition’s potential. Ultimately, a balanced approach that combines quantitative and qualitative assessments can lead to better-informed decisions and a higher chance of successful integration and growth.