Join our community of smart investors

IWG to sell its Japanese assets

The sale of the group's buildings and leases marks a shift to a partnership-led services model
IWG to sell its Japanese assets

IWG (IWG) has announced a £320m deal with Japanese group TKP to sell its buildings and franchise out its brands, the first validation of its new strategy to take on Silicon Valley rival WeWork.

IC TIP: Hold at 339p

IWG will divest its Japanese operations and begin a long-term “master franchise agreement”, allowing TKP exclusive rights to use IWG’s brands and operating platform. IWG gets an ongoing platform fee linked to sales in Japan, while TKP gets access to IWG’s sales and marketing. TKP has also agreed on a development plan which will lead to a significant increase in IWG’s network in Japan.

In August, IWG ended discussions with the last of four private equity suitors looking to buy it, after which the shares dropped by a fifth. Analysts at Peel Hunt also cut their earnings forecasts by close to a tenth, after first-half numbers missed expectations. 

Shares in IWG were up as much as a quarter following the announcement, while broker Peel Hunt raised its target price for the group by 14 per cent. Such a great reaction was in part due to the amount IWG will receive for its operations – cash profits from the Japan division were £20.6m in 2018 – less than one-15th of the sale price. Further deals are expected to follow. The shift in strategy could facilitate rapid network growth, which is crucial if IWG is to stave off WeWork, which has been growing rapidly in many of IWG’s core US locations.

WeWork also offers coworking spaces, but has its roots in Silicon Valley and has generated excitement over its prospects. Peel Hunt noted it has recently been valued at around $47bn (£35.9bn), considerably ahead of IWG’s market capitalisation of £3bn despite the latter having significantly more workstations. Peel Hunt added that WeWork’s valuation is “somewhat notional”, but the discrepancy between the two figures has sparked interest in IWG’s potential value.