Shares in IWG, the world’s largest serviced office group, dropped by nearly a quarter on Monday after the company ended takeover talks with investors clamouring to buy the WeWork rival.
Hopes for a bidding war between private equity groups had boosted IWG’s shares, in spite of a warning from the company that its expansion plans would lower profits.
IWG has been expanding aggressively to compete with the likes of $20bn office space start-up WeWork. This investment has taken a financial toll: in June, IWG issued its second profit warning in eight months, saying that operating profit for the first half of the year would be lower than analysts had expected.
Monday’s share price fall erased gains made in May when interest from competing bidders was first revealed.
The UK-listed group, which is best known for its Regus office brand, has attracted unprecedented attention from would-be buyers, but said none of the three private equity offers was “currently capable of delivering an executable transaction at a recommendable price”.
TDR Capital and Starwood Capital both approached the company in May, while US -based buyout group Lone Star expressed an interest before walking away from negotiations. Terra Firma, the UK buyout group founded by Guy Hands, joined the fray in June.
At the start of the year, IWG rejected a takeover offer from Canada’s Brookfield Asset Management and private equity group Onex after the pair made an all-cash offer valuing IWG at more than £2.5bn.
Terra Firma, TDR and Starwood confirmed on Monday they would abandon their bids rather than try to navigate a buyout without board support. Under UK takeover rules, none of them can make any new offer for the next six months unless there is a significant change of circumstances.
Chief executive Mark Dixon told the FT that engaging with the potential buyers had been a “very useful process”, but that it could be “all consuming” and “a distraction for the business”.
He also said he believed the company was undervalued. “Investors are just totally mispricing growth,” he said. “We’re lowering our profits because we’re growing, and you’ve either got to buy into that or not.”
WeWork was valued at a premium despite losing money, he added. “Our numbers are good and we’re certainly not a forced seller,” he said. “We need to communicate our growth better.”
IWG also reported on Monday that pre-tax profits for the six months to June were £54m, down from £81m in the same period last year, despite a 7 per cent rise in revenues to £1.2bn.
Andrew Brooke, analyst at Royal Bank of Canada, said he believed the company had an “unrivalled market position” but that “credibility” was “low”. “We believe it will be some time before the market will give the benefit of the doubt,” he said.
Calum Battersby, at Berenberg, said he believed trading performance in the underlying business was “weak”. “Following June’s profit warning, the company has announced a 30 per cent year-on-year profit decline, with positive revenue trends offset by a significantly increased cost base as the company grows its estate.”
Mr Dixon said the board “remains confident that the group will deliver a full-year result in line with management’s expectations”.