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Office shocker by IWG (aka Regus) part 2

By Chris Bailey | Monday 6 August 2018

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.

Take a look, if you wish, at the share price graphic of the property company IWG (IWG) - formerly known as Regus - over the last year and which is down 20% odd today. The phrase uninvestable comes to mind. Big ups, big downs and - at the end of the year - what have you got to show for it? A share price back to where it was the last time I wrote about IWG turning down a bid for its business here.

Back then I concluded 'Any office - or ‘Workplace-as-a-Service’ - company is massively leveraged to the economic cycle...especially for a premium-priced supplier with a good, but not greatly differentiated product. If you have any, sell 'em...and if you are a value punter don't be tempted'. Actually that was a wrong call for the last little while, because I had underestimated the ability and willingness of heavily funded private equity types to potentially waste their money on bid efforts...which this morning IWG has turned down, believing them to undervalue the company. Cue to 20% share price dump.

Personally I think this is madness and - if in a position of power at IWG – I would have bitten off the arm of any of the three bidders. The trouble - as Tom noted in his Bearcast yesterday - is in a world where start-up wannabe IWG's such as WeWork can have eye-popping valuations as well-oiled private pools of capital with more money than sense compete to find and back the next big thing. WeWork is pretty slick, has cool-looking offices and a suitably zany culture but, let's face it, you need an economic backdrop which supports that sort of general lunacy otherwise it is just not going to wash its face. IWG noted the challenges in the UK market in a trading update this morning and be that through WeWork-style competition or a general growing reluctance to pony up for office space in uncertain times (or a combination of the two) only time will tell. All I know is that it should have taken one of the bids.

In the investment game jumping off the escalator can be the smartest thing to do. Well the founder Mark Dixon did flog over £90 million worth of shares last June, so you would have thought he gets it. The trouble is selling up your creation is a bit harder to do. IWG truly is one for the 'experts'.

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