We Are The World

By now you are aware of the latest unicorn to fall on its own alicorn (look it up!): WeWork. WeWork was the private- equity- funded landlord whose various levels of incremental financing placed a pre-IPO valuation of $45 Billion. Unfortunately for the management of WeWork and its sponsors, the details behind this business model in preliminary prospectuses showed that building out and sub-leasing commercial office space isn’t as revolutionary, or profitable, as  was portrayed.  In short order, the IPO was scrapped and the existing business was looking compromised as a cash crunch began to emerge with the lack of any near term infusion of capital. Fast forward several weeks later and the original capital source is looking to take the company private at a valuation of  less than $8 Billion. Much like in the 2000’s era, you began to get talk about the “lost” $37 Billion, as if the spreadsheet valuations placed on this company represented actual dollars.  That $37 Billion was lost only in the sense that the actual business was viewed through the lens of reality and not through the distorted prism-like view afforded many via Central Bank policies. Discounting cash flows (assuming there are any) at minuscule or even negative, rates of interest not only cause distortions like WeWork, they encourage them, so look to see  more WeWorks in the future as reality and fantasy come together in a not so happy ending.

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