Why IWG May Get $1.5 Billion To Spin Off Instant Group

• Private equity firm CVC Capital Partners has offered to buy the Instant Group, IWG’s digital division, for a reported $1.5 billion. 
• The future of work is to be found in technology, and the ability to own and to leverage that technology is the key to successful investing in real estate. 
• Mark Dixon, the CEO of IWG, may have always intended to float off the Instant Group as a separate business — precisely because the market did not value it properly as a part of IWG. 

I have written on several occasions about how I feel IWG’s shares are undervalued — at least in comparison with WeWork’s — but I had hardly expected to be proved right so quickly.  

The proof to which I am referring is the widely reported discussions for the sale of the Instant Group — the new digital division of IWG, formed by the merger of IWG’s own tech operations with the Instant Group, less than a year ago — to private equity firm CVC Capital Partners.  

Advertisements

The price tag for the deal is said to be $1.5 billion — not far off the market cap for the whole IWG group just prior to the announcement.  

On the basis that the main coworking operation of IWG — with its £2,227 million of revenues — must be worth at least $1 billion to $1.5 billion, that would make the value of the whole group $2.5 billion to $3 billion; comfortably above WeWork’s $2 billion. 

Advertisements

What is the incentive for CVC or one of the other PE groups also looking to buy these assets? The simple answer is that the future of work is to be found in technology, and the ability to own and to leverage that technology is the key to successful investing in real estate.  

The importance of technology has been recognised here at Allwork.Space for a long time, as shown by the creation of the Future of Work Fund to invest in proptech — years before Covid reared its ugly head.  

It also explains why coworking has recovered so much quicker than conventional space post Covid: coworking companies are much more tech savvy than landlords. It also explains why many of the major commercial landlords are investing in coworking operations, recently dubbed the ‘brandlord’ phenomenon.   

If technology is the key to success, why would IWG agree to sell its tech operation? Well, a big pile of cash is always nice to have, and I suspect that Mark Dixon, the CEO of IWG, had always intended to float off this venture as a separate business — precisely because the market did not value it properly as a part of IWG.  

Advertisements

I also suspect that IWG will retain some kind of a stake in the new venture. Or, at the very least, some kind of special relationship with it to make sure IWG stays ahead of WeWork in the efficient management of its coworking estate. 

Advertisements