almost 3 years ago • 3 mins
WeWork agreed on Friday to list on the stock market via a special-purpose acquisition company (SPAC) two years after its first attempt flopped – and this time, it’s personal.
What does this mean?
WeWork’s had a tumultuous few years to say the least: the office-sharing startup was valued at $47 billion back in 2019 and had bold plans for a much-anticipated initial public offering – only for those plans to implode when investors became nervous about the company’s founder and business model. And things didn’t exactly get any better last year, when stay-at-home orders sent demand for the company’s office space plummeting, forcing it to close locations and cut jobs.
Now, though, everything’s come full circle: WeWork has agreed to merge with a SPAC – a listed company with no business operations that can combine with an unlisted company – to fast-track its arrival onto the stock market.
Why should I care?
For markets: WeWork still talks a big game.
This SPAC deal would value WeWork at $9 billion – more than five times less than at the company’s peak, sure, but $1 billion more than it was worth when it was bailed out back in 2019. That uptick might be because it reportedly “only” lost $3.2 billion last year, compared to $3.5 billion in 2019. The company has high hopes for the future too, confident that its offices will be at least 90% full by the end of 2022.
The bigger picture: Regulators never sleep.
SPACs have raised record amounts of cash from investors this year – but with popularity comes scrutiny, and US regulators are starting to sniff around. They’re reportedly worried that those in charge of SPACs don’t do enough research before they buy target companies – not to mention that there’s a risk of insider trading in the period between the SPAC’s stock market debut and the announcement of a merger target.
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Data out late last week showed that investors – jonesing for a fix of safe investments – have been buying into cash at their fastest pace since April last year.
What does this mean?
Investors have been feeling skittish recently, what with coronavirus cases and fresh lockdowns on the rise in Europe again. And if that wasn’t enough to deal with, they’ve been casting a wary eye toward potential rises in inflation too, which risk leading to stock-damaging interest rate hikes.
So in an effort to put their minds at rest, investors have started moving their money into safer investments. For starters, they parked $46 billion in cash funds last week alone. And just to be extra careful, they’ve been investing heavily in the types of government bonds whose prices move in line with inflation, which should protect them even as their buying power drops off.
Why should I care?
For markets: Tech stocks are out, energy and banks are in.
Those inflation fears might also be why investors pulled money out of tech-focused funds last week for the first time since September. Higher inflation, after all, often comes with an uptick in economic growth, which should benefit stocks that are economically sensitive – like those of banks and energy companies – more than those that aren’t, like tech. That’s reflected in share price moves this year too: US energy and banks stocks have outperformed tech stocks by 33% and 16% respectively.
The bigger picture: Investing in fads might just be a fad.
Investors also seem to have taken a fancy to thematic exchange-traded funds – that is, ETFs focused on major trends like renewable energy and gender equality. Investors put $43 billion into those funds in January and February – more than three times as much as the same period last year. But tread carefully: one study has found thematic ETFs underperform the stock market by an average of 4% a year for at least five years after they launch.
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