Private equity is hungry for a bite of IWG. The world’s largest serviced office provider by footprint said on Friday that three companies – Lone Star, TDR Capital and Starwood Capital – had separately made indicative takeover approaches for the firm.
IWG’s share price rose by 20% on Monday on the back of the news as the market anticipated a bidding war. The bids come just three months after Brookfield and private equity group Onex Corporation ended talks about a proposed takeover after their £2.5bn bid for IWG, led by chief executive and founder Mark Dixon, was rejected.
What’s different this time? The new line-up is expected to be able to offer a higher price for the business that will be more acceptable to shareholders.
A source close to the earlier takeover discussions said the dynamic between Brookfield and Onex and Dixon was not strong from a personal perspective. Bidders would need to ensure that dynamic was right, as Dixon would be expected to continue as chief executive and shareholder.
Still the market leader
What’s the attraction? Some argue IWG is undervalued compared with its nascent rivals such as WeWork and The Office Group. The business attracts criticism because it is the oldest in the sector and needs capital expenditure, but it is still the market leader in terms of presence, and comes with an experienced real estate team.
One private equity leader told EG earlier this year: “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.”
What opportunity does the business represent? It is thought likely that a private equity takeover would look to dispose of quite a large percentage of underperforming assets among IWG’s portfolio of 3,500 properties in 115 countries.
IWG, which counts Regus and Spaces among its serviced office brands, reported a pretax profit fall of 14% in 2017 to £149.4m while its revenues rose to £2.4bn to £2.2bn. Brookfield and Onex’s takeover approach came after IWG issued a profit warning in October 2017, blaming the effect of Brexit in London and the impact of natural disasters in the US.
Accelerated customer demand
Announcing IWG’s its final year results in March, Dixon said he expected the company to benefit from accelerated customer demand and growth of flexible working, and a competitive advantage from its “operational scale, global network and quality of service and technology”.
Who is in the lead? TDR Capital is a smaller fund not commonly associated with real estate deals of this size, thus Lone Star or Starwood Capital would seemingly have the edge.
In a statement, IWG said: “The board is evaluating the possible offers with its financial advisers and shareholders will be updated in due course.
“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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