Brookfield Asset Management’s indicative takeover proposal for IWG, the world’s largest serviced officer provider by footprint, has the potential to re-invent the global serviced office behemoth.
London-listed IWG operates around 3,000 locations in more than 100 countries through its brands, which include Regus, Spaces, Signature, Open Office and MOS.
Brookfield has teamed up with private equity firm Onex to make the bid, and has until 20 January to make a formal offer.
The potential bid represents a private equity opportunity to take a company that has attracted criticism and inject fresh management and capital expenditure.
IWG issued a profit warning in October 2017 and its shares fell by more than a third between June and December. IWG, which was founded by chief executive Mark Dixon in 1989, blamed the company’s missed profit forecasts on the “Brexit effect” in London and global “disruption” from natural disasters in the US.
However, critics have accused IWG, particularly through its Regus brand, of failing to keep up with the higher customer service standards demanded by clients and provided by brands such as WeWork and The Office Group. They also accuse IWG and Regus of sticking to the low-cost, convenience model.
One private equity leader says: “It’s almost amazing to me that Mark Dixon invented serviced offices, and yet in my view he missed the rise of WeWork and others almost to the same extent that the music companies missed the disruption of iPods and Spotify.”
Demand for creative space
Regus has attempted to tap into demand for more creative space, launching its Spaces brand in 2015, which is designed to target media, digital and creative companies.
Angus Boag, development director of Workspace, says: “Over the past 12 to 18 months we’ve seen customers become increasingly discerning, and operators have been evolving and adapting their offers as a result.
“There is huge interest in the flexible office market and perhaps Brookfield has seen an opportunity to tap into this.”
So what could Brookfield do with IWG?
Dror Poleg, founder of Rethinking Real Estate, says Brookfield could use Regus’s existing network to “expand to new markets or augment the new buyer’s existing offering in some markets.”
He added: “In addition, as we’ve seen in WeWork’s latest deal with Hudson’s Bay Co, [there is] value potential in integrating retail and office, and Brookfield is in a great position to be at the forefront of that.”
WeWork agreed a deal in October to buy HBC’s Lord & Taylor New York department store and lease back 150,000 sq ft on the lower floors for a Lord & Taylor store on Fifth Avenue. Brookfield could also look at installing IWG serviced offices across Brookfield Property Partners’ substantial global office portfolio.
However, it is understood that this is not the preferred option for the private equity firm’s real estate arm.
Extra level of experience
Speaking at an Instant Group-hosted panel discussion on flexible workspace in November, Martin Wallace, head of leasing at Brookfield Office Properties, said the company was already trying to provide that extra level of experience increasingly demanded by occupiers, with offerings that include art installations and events in public spaces.
He said: “I think a lot of landlords are still in the dark [about the disruption coming from flexible office providers]. Some have embraced it. British Land doing Storey – that’s a reaction, not an embrace. It’s not a paradigm shift of approach to life. But there are examples out there of people trying to break that down. Or who have said that they don’t have those skills, and therefore they have to work with other people in the industry to provide that extra intensive level of service.”
Despite scepticism about IWG’s ability to compete at the service level provided by operators such as WeWork, which has stormed the central London market with more than 2m sq ft of take-up, one Regus landlord argues that Brookfield could capitalise on IWG’s strong regional presence where flexible workspace is underprovided.
Landlords are being forced to react to the disruption in customer service provided by serviced office providers and a private takeover of IWG would be just the latest example. Recent significant deals in the sector have included Blackstone’s acquisition of The Office Group last year and Brookfield’s investment in meeting space start-up Convene.
In a statement, IWG said: “There can be no certainty that any offer will be made for the company, nor as to the terms on which any offer might be made.”
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