WeWork hires Alvarez & Marsal for lifeline restructuring

30 August 2023 Consultancy.uk 4 min. read
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Beleaguered ‘unicorn’ WeWork has appointed restructuring specialists from Alvarez & Marsal, as it seeks a lifeline for its floundering business. The news comes with the New York Stock Exchange having initiated the process to de-list the firm as its trading price was “abnormally low” – having been valued at $47 billion in 2019.

Amid the pre-pandemic boom of the gig economy, WeWork launched with a stated goal of providing coworking spaces to small businesses and freelancers, including physical and virtual shared spaces. Since its 2010 launch, the flexible spaces, some of which could be rented on a monthly basis, proved a hit, and received some rapid uptake in the project’s early phases – even though it struggled to really monetise this uptake. This led to WeWork achieving ‘unicorn’ status in 2014, as a start-up valued at $4.6 billion.

As the hype continued to grow, the organisation quickly attracted a huge glut of private equity funding. In 2017, Japanese multinational conglomerate holding company SoftBank became the latest entity to sink funds into WeWork, investing $4.4 billion which took WeWork's funding round to over $20 billion. This was in spite of WeWork having never actually turned a profit – also like may start-ups at the time – and in the following years, it became increasingly clear that a potent mixture of hype and dishonesty had seen the start-up colossally over-valued.

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In 2019, the extent of the problem finally came to light, when – having been re-valued at $47 billion – WeWork decided to try and attract even more capital by going public. In order to do that, it had to file a public prospectus, describing its financial security for potential buyers – but this ended up putting off investors, as it revealed the extent of the company's losses over its decade in business. Among the parts of the statement to pique the suspicions of analysts were the fact CEO Adam Neumann has been charging the company for personal expenses on things such as credit card debt secured by WeWork stock – leading to questions about the firm’s true worth, and its corporate governance.

Neumann was forced to step down, but the problems did not stop there for WeWork. With the firm’s IPO having failed, reports also surfaced that phonebooths in select WeWork offices were ridden with cancer-causing formaldehyde. Then, in 2020, investors who bought shares in WeWork prior to the IPO filed a class-action lawsuit against WeWork and SoftBank, in which they alleged that WeWork downplayed losses and overhyped its business plan.

New CEO Sandeep Mathrani sought to cut overhead costs by $1.1 billion and $400 million in operating expenses, boosting WeWork's free cash flow by $1.6 billion – but by 2023, it was reported that WeWork – now valued at $360.9 million – faced delisting on the New York Stock Exchange as its stock price had fallen below $1. WeWork has since warned that it has 'substantial doubt' that it can stay in business for any longer, and announced that it may have to file for Chapter 11 bankruptcy protection.

Restructuring

In search of one final lifeline, WeWork has appointed a crack squad of business experts to try and turn its sinking operations around. As WeWork bids to restructure its debts out of court, and avoid bankruptcy, the firm has hired real estate adviser Hilco Global, re-engaged law firm Kirkland & Ellis for advice on its options, and tapped corporate rescue consultancy Alvarez & Marsal – according to reports first published by Bloomberg News.

Bloomberg cited sources at WeWork who asked not to be identified because the matter is private, but said that the firm is struggling with a heavy debt load and poor financial performance. Representatives for Hilco, Kirkland and A&M are all yet to comment on the matter.

The news comes after WeWork already added four restructuring specialists to its board. Alongside Paul Aronzon, Paul Keglevic, and Henry Miller, Elizabeth LaPuma is of note because earlier in her career, she was also an A&M advisor. While LaPuma was most recently the head of UBS’s balance sheet advisory group, serving as a managing director, she also previously ran A&M’s asset management services practice, managing a portfolio of assets including a $2.5 billion portfolio of debt and equity investments.

The advisors now find themselves in a race against time to steady the ship, with WeWork’s shares having been suspended from the New York Stock Exchange. The shares had been in free-fall to a price of $0.12, but due to these “abnormally low" trading price levels, the stock exchange has since confirmed it will now initiate proceedings to delist them completely – possibly closing off one of WeWork’s most historically dependable sources of income: speculative investors.