By Neal England
Practice Leader – Human Capital Management

Coworking companies have become the latest hot targets for cross-border merger and acquisition activity as the sector seeks more global expansion opportunities.

In early April, Naked Hub, a regional coworking start-up based in Shanghai, completed the acquisition of Australia-based Gravity Coworking, which had sites in Sydney, Melbourne and Brisbane. Then, days later, the world’s largest coworking company, New York-based WeWork Cos., gobbled up Naked Hub in an estimated $400 million deal. WeWork acquired Singapore-based SpaceMob in August 2017.

We’ve seen the growth of coworking spaces take off internationally, as well as here in the United States.

Coworking companies rent a table-top, desk or an office to individuals in a shared work environment that appeals to entrepreneurs and start-ups who may only need a laptop, cellphone and high-speed Internet to conduct business. Typically the space is rented based on a membership fee that allows for regular access to the space. Amenities may include a conference room, coffee bar and janitorial services.

While many of these entrepreneurs could work from their kitchen tables or home offices, they are attracted to the synergy and collaborative nature of working around others in a shared space. The concept has proven popular in the gig economy where freelancers, contractors and various entrepreneurs can find the work-from-home concept isolating.

Millennials, especially, have been identified as a generation that enjoys coworking as they like the urban, hip environments where coworking space is often located, the lower-cost of office space, the lack of a long-term lease and the networking opportunities.

Maturing industry

The coworking industry continues to evolve as it begins to mature.

Global real estate firm JLL notes that the proportion of coworking and flexible work space in the commercial real estate sector is expected to grow this year. JLL says more than 60% of employees say access to external coworking spaces as a positive or very positive impact on their engagement and productivity. The report notes that 34% of employees currently work at least once a month from a third-party location such as an Internet café, public library or coworking space.

Operators, themselves, are also experimenting. Naked Hub, for example, is testing a pay-as-you-go concept in China where you can rent an on-demand desk for 15 renminbi or about $2.40 an hour. Some coworking spaces have also begun to cater to special niches such as spaces for High Tech, FinTech, BioTech or creatives.

Growth and consolidation on the horizon

We expect to see more M&A cross-border deals as well as continued organic growth as the industry matures.

Strong competition in the space is expected to lead to more consolidation, says Deskmag, which takes an annual survey of the coworking industry. It predicts that 1.7 million people will work from about 19,000 coworking spaces by the end of 2018 and says 29% of coworking spaces opened in the last year, almost the same as the prior year. Two out of three coworking spaces plan to expand this year, its survey shows.

“The expansion plans are based on overall optimistic estimations that haven’t changed compared to the previous year. Four out of five coworking spaces expect member numbers to grow, and almost as many expect higher profits. Overall, more operators of coworking spaces are optimistic about the future,” it reports.

Bloomberg notes that WeWork, which first entered China in 2016 with an office in Shanghai, has aggressively pushed expansion further into China. The company attracted $4.4 billion in growth capital from SoftBank last year with $1.4 billion of that earmarked for expansions into China, Japan and Southeast Asia.

Capital Alliance Corporation is a Dallas-based investment banking firm with an extensive international reach and a 40-year history of providing trustworthy advice to private company shareholders who want to sell their businesses. Our team has deep operational and M&A experience across many sectors, including human capital management.