Less Risk, More ‘Reliability’: Coworking Giant IWG Seeks to Capitalize as WeWork Stumbles

Despite a disastrous foray into public markets for coworking giant WeWork, its biggest competitor still sees opportunity.

IWG, the world’s largest operator of coworking spaces, is doubling down on U.S. expansion plans through McDonalds-style franchising—though mergers and acquisitions, and eventually, a possible IPO of the North American business.

“We are looking at strategic opportunities, like a possible split in moving the U.S. business onshore,” said IWG CEO Mark Dixon in a recent interview with Fortune. Previously, Sky News reported that Dixon was in talks with investment banks about a potential IPO of its U.S. business in late August in a deal that could value the office-space provider at about $3.7 billion. “We’re always looking for new options for what we can see is a very strong appetite for the industry in the United States,” said Dixon.

Unlike its younger and more flamboyant brethren, WeWork, IWG has generally kept a low profile. But as WeWork’s prominence grew, investors sought a comparable roadmap of what its growth may look like—and they landed on IWG—the co-working company founded by Dixon in 1989 that was turning a profit, had grown to be the largest in the industry, yet was valued at less than WeWork in public markets. Still it hasn’t been easy sailing: Under the duress of a financial recession in 2003, the company filed for bankruptcy protection of its U.S. unit—something recent WeWork skeptics have pointed to as a sign of the industry’s volatility.

These days, IWG’s near-term growth strategy involves franchising its business, under which a third party takes on the risks of the lease but operates under IWG’s brand. Earlier this year, IWG struck a franchising deal with Tokyo-based conference room lessor, TKP, selling nearly all of its Japan-based operations for roughly $393 million based on today’s conversion rate. Investors approved—shares of IWG, which are traded on the London Stock Exchange, surged 20% surge on the news and have held those gains.

IWG plans to make a similar play in its U.S. expansion: It is partnering with franchisees here, targeting owners who already work with the likes of Starbucks, Holiday Inn, Burger King, and McDonalds in mid-sized cities and small towns in the U.S. The tradeoff: franchising is potentially less lucrative but also less risky for a firm that has survived recessions and bankruptcy.

“The franchising program is number one,” Dixon said of the company’s expansion plans. “It has already seen tremendous momentum.” As for an eventual IPO? Any offering of the U.S. unit, what Dixon considers the company’s “crown jewel… is not likely to happen in the short term,” he said.

Indeed, WeWork’s reception testing the IPO market was brutal. The firm is now seeking to cut perhaps around 2,000 staff members, is considering the sale of at least three businesses, and is offloading its now infamous private jet two WeWork insiders confirmed to Fortune. It’s a sharp 180 degree turn from its position just two months earlier, when WeWork sought to bankroll aggressive expansion plans through an initial public offering that would value the company $47 billion on the public markets. Public investors though appeared unimpressed, giving the company a steep cut that has left its biggest backer, SoftBank, “embarrassed,” SoftBank CEO Masayoshi Son said in an interview with Nikkei Business. WeWork has since withdrawn its IPO.

Of course, for IWG’s strategy to succeed in the long-term, it will have to tap into a certain cultural thrum that until now, WeWork has been able to dominate with its flora-filled office spaces, hot desks, video consoles, and pizza parties.

On that front, Dixon argues what potential clients want are no longer the headline-grabbing amenities at WeWork. “In the past they have been very helpful in evangelizing the industry and it’s been good to have WeWork around,” said of WeWork’s cultural significance. “But there are clear differences between business models and how you deliver.”

To that end, IWG is playing up its status as an established company run by executives with decades of experience.

“We are all about reliability. For the world’s leading companies, the top of the list isn’t free beer and that sort, it’s: does it work and are my people going to be productive,” he said. “They don’t like instability. Now there are clearly questions about the integrity of WeWork based on the lifestyle that is happening in the company.”

While WeWork deals with its own restructuring, Dixon is not, however, complacent. A possible recession constantly nips at the heels. “You have to plan each investment as if the world might stop tomorrow,” said Dixon. “Because it might.”

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