IWG, the flexible office provider, intends to raise a £315m war chest in order to fund its growth and pursue the acquisition of rivals hit by the effects of coronavirus.
The company, formerly known as Regus, said that the virus and its impact on the office market presented “an increased number of attractive organic and inorganic opportunities to accelerate the growth and development of the business”.
The equity raising would enable IWG to “rescue” offices and brands from owners placed under pressure by the virus, which has forced offices to close and affected rental income.
IWG is betting that a recession will mean more demand for short-term, flexible facilities, while social distancing requirements will encourage established companies to increase their office space.
The company’s chief executive Mark Dixon owns a 28.5 per cent stake in the business and is personally putting £90m into the equity raise.
Like its peers in the co-working sector, IWG has been badly hit by coronavirus. Shares in the company, which operates 3,405 offices globally, have fallen 41 per cent since the start of the year. IWG has seen “sharp declines in new sales activity” in Europe, the UK and the Americas, as well as a slowdown in Asia.
Stripping out income from the addition of new offices, revenues in April were 2.9 per cent lower than the previous year on a constant currency basis, said the company in a trading update released on Wednesday evening.
But the company’s net debt, at £320m, is almost 40 per cent lower than 12 months ago.
“It’s no secret that their business model leaves them exposed,” said Calum Battersby, an analyst at Berenberg. “But net debt hasn’t really moved since the year end, suggesting that most of their customers have been able to pay or [IWG] has offset that elsewhere,” he added.
IWG has deferred new openings, furloughed staff and scrapped its dividend. The company’s board, including Mr Dixon, have taken 50 per cent pay cuts. IWG has also pushed for rent deferrals with some of its own landlords. In total, the measures have saved the company around £150m.
IWG’s rival WeWork is among those attempting to reshape its portfolio in the face of the pandemic. WeWork has appointed property agent Knight Frank to renegotiate lease terms for its sites in London, Manchester, Birmingham and Edinburgh.
A number of WeWork landlords have sounded out replacement tenants should the beleaguered co-working company pull out, according to someone familiar with the negotiations.
IWG acquired a number of smaller rivals in the years following the financial crisis, and would look to repeat the move, said Mr Battersby. “Any of the companies with the same model as them are going to really struggle, and they don’t have the opportunity to go to their shareholders and ask for £300m.”