China's Ucommune may have missed WeWork IPO memo

[HONG KONG] 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 (IPO) on the New York Stock Exchange, a couple months after WeWork's flamed out. Its last private valuation of US$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 US$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 US$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 Mr Mao, who currently holds 35 per cent 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 US$200 million. On that basis, its last funding round would impute a multiple of 13 times revenue. Listed peer IWG trades at under four 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 US regulators, have bailed over valuation, Reuters reported. Prospective investors delivered a pretty clear message to WeWork; Ucommune seems to have missed it.

Ucommune, a Chinese shared-workspace provider, on Dec 11 filed for an initial public offering on the New York Stock Exchange. The company said it is planning to raise US$100 million.

In November 2018, Ucommune raised US$200 million at a US$2.6 billion valuation, Reuters reported in October 2019.

In the nine months to September, Ucommune reported a net loss of US$80 million on US$122 million of revenue.

Haitong International and China Renaissance are the lead advisers on the deal. Credit Suisse and Citigroup, which helped Ucommune submit a confidential prospectus to US regulators in September, have dropped out of the deal over the company's desired valuation, Reuters reported on Dec 12, citing unnamed sources.

REUTERS