SoftBank Closing In on a US Startup


February 27, 2017

SoftBank is close to finalising another deal, according to CNBC. This time the Japanese conglomerate has set its eyes on a US startup WeWork. The office-sharing startup is expected to be worth over $3 billion and it would be yet another step for SoftBank to expand beyond the technology and telecoms sector.


According to CNBC reports, the deal is currently discussed in terms of a $2 billion primary tranche of funding, with a secondary investment round to follow with around $1 billion. The anonymous source suggested the secondary investment could be higher and mean the total investment is closer to $4 billion.


A recent investment in the New York-based company valued the business at about $17 billion. If the SoftBank deal goes through as suggested, the valuation would increase to over $20 billion.


The Wall Street Journal reported on SoftBank’s interest in the startup in January. At the time, the number thrown around stood at a $1 billion investment, with CNBC sources now saying the interest and offer increased after the reporting. Neither SoftBank nor WeWork have yet to respond to the reports.


Aggressive strategy


SoftBank has raised over $1 billion in the past two years. It has been going after investment opportunities rather aggressively, expanding its reach beyond Japan and Asia. DealMarket reported on its surprise decision to buy the US private equity firm Fortress Investment Group earlier this month. The company has also launched a tech investment fund with Saudi Arabia that has the potential to grow beyond $100 billion. This would turn SoftBank into one of the world’s largest private equity investors.


The aggressive strategy has caused concern among analysts, mainly due to the company having to deal with a heavy debt pile. The company has around $130 billion worth of debt, making it the biggest debt load in Japan.


Analysts are also puzzled by the strategy of broadening beyond tech and telecoms. During the Fortress deal, chief investment officer at Myojo Asset Management Co. in Tokyo Makoto Kikuchi told Bloomberg, “It’s really difficult to figure out what exactly are they after”. Furthermore, Tomoaki Kawasaki, an analyst at Iwai Cosmo Securities Co., told the news outlet how “SoftBank is not doing a great job in communicating where this fits into their investment strategy”.


WeWork headed for public listing


For WeWork, the deal could potentially boost their upcoming public listing plans. The company’s co-founder Miguel McKelvey told last week the company is set to expand to Beijing in May and to continue to raise capital ahead of the initial public offering (IPO). McKelvey has not provided a timeline for the listing.


Chinese private equity company’s investment last year has already made the startup into one of the world’s most valuable startups. Hony Capital’s $700 million investment helped push up WeWork’s valuation. If the SoftBank deal were to go through, its position would only strengthen.


The market didn’t initially react positively to the news. SoftBank’s share price fell 2.3% in the morning trade. This was steeper decline than the 1.4% fall for the benchmark Nikkei average .N255.

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