WeWork files for Chapter 11

By Fraser Tennant

In a major collapse for an organisation once valued at $47bn, office-sharing company WeWork Inc. has filed for Chapter 11 bankruptcy in order to strengthen its balance sheet and streamline its real estate footprint.

The Chapter 11 process allows WeWork to implement a restructuring support agreement (RSA) with holders representing approximately 92 percent of its secured notes to drastically reduce the company’s existing funded debt and expedite the restructuring process.

The filing, which is limited to WeWork’s locations in the US and Canada, lists the company’s total debts as $18.65bn against total assets of $15.06bn. As part of the filing, the company has requested the ability to reject the leases of certain locations, which are largely non-operational, and all affected members have received advanced notice.

“Now is the time for us to pull the future forward by aggressively addressing our legacy leases and dramatically improving our balance sheet,” said David Tolley, chief executive of WeWork. “We defined a new category of working, and these steps will enable us to remain the global leader in flexible work.”

During the RSA process, the company has pledged to further rationalise its commercial office lease portfolio while focusing on business continuity and delivering best-in-class services to its members. Global operations are expected to continue as normal.

“I am deeply grateful for the support of our financial stakeholders as we work together to strengthen our capital structure and expedite this process through the RSA,” continued Mr Tolley. “We remain committed to investing in our products, services, and world-class team of employees to support our community.”

Founded in 2010, WeWork’s vision was to create environments where people and companies come together and do their best work. Since then, the company became the leading global flexible space provider committed to delivering technology-driven turnkey solutions, flexible spaces and community experiences.

“It is the WeWork community that makes us successful,” concluded Mr Tolley. “Our more than half-million members around the world turn to us for the best-in-class spaces, hospitality and technology that our 2500 dedicated employees and valued partners provide. WeWork has a strong foundation, a dynamic business and a bright future.”

News: SoftBank's WeWork, once most valuable US startup, succumbs to bankruptcy

Private equity searching for value in a changing market

BY Richard Summerfield

Despite a challenging year marked by rising interest rates and slower growth, successful private equity firms (PE) are adapting to the changing environment, according to Dechert LLP and Mergermarket’s sixth annual Global Private Equity Outlook report.

According to the report, which is based on responses from senior executives within PE firms in North America, EMEA and APAC, 26 percent of respondents, the largest share, believe that interest rates will have the single biggest impact on the deal environment over the coming 12 months.

Also, in response to the US regional bank crisis of earlier this year, 35 percent of respondents intend to move more toward private credit providers. This shift has been visible across all parts of the world.

Ninety-two percent of general partners (GPs) say they are currently utilising earn-outs a strategy to manage the valuation gap that emerged last year in response to macro and market conditions.

Fifty-eight percent of respondents believe that the market conditions for exits will be either neutral or somewhat favourable over the coming year, suggesting GPs are confident in a recovery but remain realistic about the challenges ahead. However, this is a significant fall from 84 percent of respondents who shared that view a year ago.

Ninety-four percent of respondents are likely to consider pursuing take-privates at present, a marked difference from last year when less than 50 percent said they were likely to do so. Increased regulatory scrutiny is expected to have a negative impact on dealmaking over the next 12 months, however. Forty-six percent of respondents reported that they expect antitrust authorities to have a negative impact and 25 percent expect a significant negative impact on their dealmaking plans over the next 12 months.

“Despite a decline in fundraising and dealmaking coupled with debt becoming costlier and scarcer, private equity marches forward,” said Markus P. Bolsinger, co-head of Dechert’s global private equity practice. “The shift towards take-private transactions is an example of how they are not just surviving but thriving in the face of market volatility, finding value in public markets where others see uncertainty.

“Given the additional regulatory complexity and public scrutiny of these deals, active engagement of skilled professional advisers from the very start is a necessity, particularly in the US, where stockholder-plaintiffs have recently secured significant damages awards in the Delaware courts against acquirors in take-privates,” he added.

Going forward, the report suggests that GPs should build portfolio resilience, that parties on both sides of transactions need to think creatively to ensure success, that firms capitalise upon public markets and that GPs should use environmental, social and governance (ESG) as a lever to create value through new revenue, reduced costs, improved access to finance and higher employee engagement and productivity.

Report: 2024 Global Private Equity Outlook

Companies face AI, deepfakes and other threats as cyber security continues to evolve

BY Richard Summerfield

As artificial intelligence (AI), deepfakes and other threats continue to evolve it is imperative that companies upgrade their cyber security systems as soon as possible, according to OnePoll and Gemserve’s new report: ‘Through the Cyber Lens: The Evolving Future of Cyber Security’.

The study surveyed 200 chief information security officers (CISOs) across the UK and Europe, assessing the readiness of CISOs to confront the evolving challenges in the cyber security space, particularly those derived from the burgeoning influence of AI, while also exploring their expectations for the future.

According to the report, CISOs are increasingly concerned about the use of deepfake AI technologies in cyber attacks. Eighty-three percent of respondents noted that generative AI will play a more significant role in future cyber attacks, with 38 percent expecting a significant increase and 45 percent anticipating a moderate rise in attacks utilising these technologies over the next five years. However, despite the imminent nature of the threat, only 16 percent of respondents believe their organisation has an excellent understanding of these advanced AI tools, and thus are likely unprepared.

“As the AI revolution transforms the landscape of cybersecurity, CISOs stand at the forefront of this change,” said Mandeep Thandi, director of cyber and privacy at Gemserv. “AI is reshaping the contours of cyber defence by augmenting human capabilities, predicting threats, and fortifying organisations against the volatile cyber threat landscape.”

Many CISOs also noted that they do not have the resources to face up to the many challenges they encounter. Around a third of respondents believe they lack the budget required to do their jobs most effectively, while a similar proportion are finding it difficult to recruit and retain staff with the right skills and experience.

A much higher percentage of respondents (92 percent) believe they have robust and tested incident management policies and procedures in place, but there are significant technology and knowledge gaps that should give cause for concern. Only 31 percent of respondents believe they have both security information and event management (SIEM) tooling and cyber threat intelligence, even though the majority of respondents (78 percent) expect the cyber threat landscape to become more complex and challenging over the next 12 months.

Going forward, CISOs will be hoping they are provided with the resources they need to help them navigate the challenging and uncertain future and reduce the efficacy of cyber attacks.

Report: Through the Cyber Lens: The Evolving Future of Cyber Security

M&A activity dips but recovery optimistic, claims new report

BY Fraser Tennant

Following the recovery in the global M&A market in the second quarter of 2023, deal activity fell in the third quarter, according to a new PitchBook report published this week.

In its ‘Q3 2023 Global M&A Report’, PitchBook reveals that global M&A deal value nearly reached a 10-year low in Q3 2023, falling sequentially by 19.9 percent. The report also notes that deal value is down 22.5 percent year to date despite a negligible decline in deal count.

Moreover, sponsor share of M&A deal flow has contracted to 33.1 percent, 4.8 percentage points below its Q4 2021 peak, en route to a second year of decline after 10 consecutive years of expansion. In addition, dealmakers are biding their time with smaller deals until conditions improve for megadeals.

“Nearly two years after reaching its zenith in Q4 2021, the downturn in global M&A shows no signs of slowing and in fact accelerated in Q3 2023,” said Tim Clarke, lead analyst, private equity at PitchBook. “It was a quarter that began with a budding recovery in equity and debt underwriting and stabilisation following the bank mini-crisis. However, it ended with the threat of a US government shutdown and a less friendly interest rate outlook by central banks, which gave M&A dealmakers pause.”

However, several market conditions are pointing to a forthcoming recovery in the M&A market next year. Trillions of dollars in dry powder for private equity sponsors and cash piles kept on hand by corporations are positioned for new deals. In addition, lower private-market valuations may spur rich public strategic buyers to scoop up private targets.

“The preconditions for a rebound are there, starting with the global total of $1.4 trillion in unspent PE dry powder, just 9.7 percent shy of its all-time high,” continued Mr Clarke. “An even larger cash pile is on the books of corporations. In the US alone, cash holdings surpassed $4.1 trillion in Q2 2023, an all-time record, and the figure grows to $5.8 trillion when including reserves held overseas.

The report observes that while only a portion of this is earmarked for strategic investments and acquisitions, untapped borrowing capacity and stock value easily compensate for the rest.

For these reasons, we believe that the currently weak trend in M&A will give way to an eventual recovery,” concluded Mr Clarke. “Recent events have most likely pushed that recovery from Q4 2023 to Q1 2024, but somewhere around this two-year anniversary we expect the tide to turn.”

Report: Q3 2023 Global M&A Report

Air Methods files for Chapter 11

BY Fraser Tennant

In a move intended to restructure its business operations and reduce its total debt, private equity-owned air medical helicopter company Air Methods and certain of its affiliates has filed for Chapter 11 bankruptcy protection.

The Chapter 11 filing allows the company to implement a restructuring support agreement (RSA) with its first lien lenders (including commitments for $80m of debtor-in-possession (DIP) financing), bondholders and its equity sponsor under which such key stakeholders have agreed to support an expedited balance sheet restructuring.

Additionally, the restructuring contemplated by the RSA – which aims to reduce the company’s total debt by approximately $1.7bn – provides for vendors and suppliers to be paid in full, and for teammates to continue receiving their pay and benefits without interruption.

As it moves through the court-supervised process, Air Methods is operating normally and without service interruptions, continuing to serve partner hospitals, healthcare systems and customers.

“We are pleased to have reached this agreement with our key stakeholders, which will enable us to continue supporting patients with lifesaving care and serving as an integral link between the nation’s top healthcare facilities and people in rural and remote communities,” said JaeLynn Williams, chief executive of Air Methods. “Over the past year, we have made meaningful progress optimising our field operations, going in-network with leading commercial insurers and improving our cost structure.”

“We have also seen record numbers of transports, and we have opened several new bases across the country this year as there is a great demand for air medical services. By strengthening our balance sheet, we are taking an important step forward in delivering on our transformation plan while answering every call with the highest level of service and patient care.”

With more than 40 years of air medical experience, Air Methods is the preferred partner for hospitals and one of the US’ largest community-based providers of air medical services. The company’s fleet of owned, leased and maintained aircraft includes approximately 390 helicopters and fixed-wing aircraft.

Air Methods expects to complete the restructuring process on an expedited basis and emerge from Chapter 11 with an optimal capital structure by the end of the year.  

Ms Williams concluded: “With increased financial flexibility and access to additional capital, we will be better positioned to continue opening new greenfield bases, accelerate our talent acquisition initiatives, execute on our growth initiatives and equip more emergency personnel with the expertise needed to safely deliver the highest quality air medical care for generations to come.”

News: Medical helicopter company Air Methods files for bankruptcy