Investments

SoftBank, Flush with Hard Cash, Eyes WeWork Stake

SoftBank is looking to put its money to work in WeWork. Possibly.

Bloomberg reported Wednesday (October 10) that the Japanese firm – whose investments stretch out across a variety of verticals (more on this later) – is eyeing a majority stake in the co-working company.

The newswire cited an unnamed source “familiar with the matter.”

Should SoftBank, which is behind the world’s largest private equity fund, pull the trigger and garner that sizable stake in the startup, the move would be what the newswire called “a doubling down on one of its biggest bets” on WeWork, which has been posting losses.

A majority stake is a change of pace for the Japanese firm, which typically guns for minority stakes in companies. Bloomberg in turn cited the Wall Street Journal, which has estimated that the SoftBank stake could be in the range of $15 billion to $20 billion, sparking a valuation of around $40 billion and coming on top of a $4.4 billion investment last year.

For WeWork, the top line is growing even as the bottom line has been red. The company now is the largest tenant for flexible office space in Manhattan, and revenues have doubled year on year, as evidenced by 2017’s top line of $886 million.

SoftBank has $92 billion in the till through its Vision Fund, which in turn focuses on tech companies in general and in particular firms that tend to eye disrupting their industries. Investing in loss-making firms has been nothing new for SoftBank, which has a minority stake in Uber.

Glancing through recent presentations from the company, there is a fair amount of dry tinder. Of the aforementioned $90 billion in capital, $27 billion has been disclosed as the acquisition costs reported in August. And all told, the valuation gains have been significant, as the company has unrealized gains of 244 billion yen for the period that ended June 30, boosted by valuation gains in Flipkart shares (164 billion yen, and where it sold its 20 percent stake in that firm to Walmart earlier in the year, marking its first known divestment) and gains in the fair values of WeWork and other companies.

Beyond that, and stretching back a few years, SoftBank has been deploying capital at what might be considered a heady pace. Three years ago it spent $627 million to take a stake in Snapdeal, an Indian eCommerce site. Investments in Didi Chuxing, the Chinese ride-hailing firm, to the tune of $10 billion, came in 2016 and 2017. At the beginning of 2017 it spent $1 billion to grab minority holdings in SoFi, an alternative lender based in the United States. The initial WeWork stake mentioned above came in March of 2017. It also sank $1.4 billion into Paytm in May 2017, with $250 million invested in Kabbage over last summer. Of course, the firm invested in Alibaba early in the millennium, with a $20 billion stake that Bloomberg said at the end of last month is now worth $120 billion.

More deals are of course likely to come, perhaps fast and furious. As Bloomberg has noted, founder Masayoshi Son has said that he wants to raise a new fund worth $100 billion every two to three years, eyeing a spend rate (of investments) of $50 billion annually.

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