Breakingviews - China's Ucommune may have missed WeWork IPO memo

A room is seen at UCommune coworking space in Shanghai, China March 7, 2019. Picture taken March 7, 2019. REUTERS/Aly Song

HONG KONG (Reuters Breakingviews) - If investors didn’t like the look of America’s biggest shared-office provider, maybe they’ll be interested in China’s? It doesn’t seem likely.

Beijing-based Ucommune has laid out plans for an initial public offering on the New York Stock Exchange, a couple months after WeWork’s flamed out. Its last private valuation of $2.6 billion implies a similarly punchy price tag. And like WeWork, Ucommune comes with conflicts of interest and corporate governance concerns.

The five-year old company led by Mao Daqing is in many ways a miniature version of Adam Neumann’s venture, which was once improbably valued at almost $50 billion. Founded as UrWork in 2015, Ucommune was forced to change its name in late 2017 after The We Company filed a trademark-infringement lawsuit. It now has some 200 locations and roughly 610,000 members worldwide.

Ucommune’s IPO documents will look familiar to anyone who reviewed WeWork’s. Sales are growing fast, but in large part thanks to acquisitions – in advertising, interior design and construction. Its net loss in the nine months to September also more than doubled to $80 million from a year earlier.

As at WeWork, there are controversial dealings with its powerful founder. Ucommune not only leases locations from an affiliate of Mao, who currently holds 35% voting power, but also sells consulting and other services to the same entity.

The numbers are equally eyebrow-raising. Assume Ucommune’s top line for 2019 grows at the same pace as in the first nine months, it should reach just under $200 million. On that basis, its last funding round would impute a multiple of 13 times revenue. Listed peer IWG trades at under 4 times, using estimates compiled by Refinitiv.

WeWork’s pitch ultimately flopped, forcing it to ditch its IPO and seek a capital injection from existing backer SoftBank instead. Investment bankers have already distanced themselves from Ucommune. Citigroup and Credit Suisse, who helped the Chinese company submit its prospectus to U.S. regulators, have bailed over valuation, Reuters reported. Prospective investors delivered a pretty clear message to WeWork; Ucommune seems to have missed it.


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