IWG, the parent company for Regus has agreed to sell its Japanese business for £320 million ($446 million) as the flexible office provider shifts toward a franchise model.
The London-listed firm is selling 100 percent of the equity in the company that holds its 130 Japanese locations to Tokyo-based TKP Corporation, along with exclusive rights to use IWG’s Regus, Spaces and OpenOffice brands in the country, according to a statement released on Monday.
In a conference call with analysts and investors late on Monday, IWG CEO Mark Dixon indicated that the company, which held talks last year about selling its business to private equity firms, now intends to sell “pretty much all” of its global operations via deals similar to the Japan transaction.
Global Operations on the Block
“IWG will become more valuable without its assets than with its assets,” IWG’s Dixon said in remarks cited by the Financial Times. IWG, which has operations in 80 countries globally, indicated that it is in talks with a number of potential franchise partners in different countries, according to the FT account.
The Japan sale, and the franchise strategy, may allow the company to close some of the gap with its loss-making rival WeWork, which was recently valued at a reported $47 billion. IWG’s market capitalisation before shares soared yesterday on news of the franchise deal, stood at around £3 billion ($3.93 billion) on earnings before interest, tax, deprecation and amortisation of £389.9 million.
IWG’s sale of its Japanese operation to TKP values that business at over 15.5 times its 2018 EBITDA of £20.6 million, according to figures in the official statement. If IWG can achieve a similar valuation in other markets, its 50 million square feet (4.64 million square metres) of global office operations could bring the company a valuation of around £6 billion, according to analysts at US investment bank Stifel.
Early last year IWG and Brookfield Asset Management ended talks which would have reportedly valued IWG, which brought in £2.35 billion ($3.06 billion) in revenue in 2018, at $3.7 billion.
IWG Chooses Franchise Model
Under the terms of the agreement between IWG and its new partner, TKP, which is Japan’s largest operator of conference rooms and banquet halls will continue to operate the Regus, Spaces and OpenOffice locations under their current brands and using the UK firm’s operating platform. The Japanese firm has also committed to a development plan which will add significantly to IWG’s centre network in the country, according to the statement.
Dixon said in the analyst call that the new strategy could help IWG expand to over 30,000 locations globally – ten times its current footprint – without using its own balance sheet, according to the FT account.
IWG, which will now act as master franchisor for the brands, will provide on-going services and support to TKP including access to IWG’s brand portfolio, global network, sales and marketing platform and operational infrastructure and technology, in return for an on-going fee linked to system-wide revenues in Japan.
Completion of the sale and purchase agreement between the two companies is expected in May of this year and is conditional only on Japanese anti-trust clearance.
In addition to its Regus, Spaces and OpenOffice offerings, London-listed IWG also operates locations under the No18 luxury office brand, Signature by Regus and the mid-range HQ line.