WeWork, the global coworking group that filed for bankruptcy protection in the United States this week, is often referred to as a "trailblazer" for the sector. But the term is more appropriate for Mark Dixon, the chief executive of the IWG group of companies.
Dixon's tale is likely a salutary one for New York-based WeWork. He built the first global serviced office business, becoming a billionaire, as the dotcom boom took hold in the 1990s. Then the bubble burst and Dixon lost his shirt and nearly everything else.
His Regus brand became the first from the United Kingdom to file for bankruptcy protection in the United States via Chapter 11. Dixon later bought his business back and rebuilt it into a global giant, spreading into double the amount of countries. If WeWork needs proof it can come through its predicament, it could do worse than looking here.
Born in Essex, east of London, in 1959, from day one Dixon appears to have been a highly self-motivated entrepreneur, one who famously got his start selling hot dogs. After disposing of his fast-food business in 1988 and relocating to Brussels he had his light-bulb moment. Noting how many people were having meetings in cafes rather than offices, he concluded the world needed an office business offering flexible, short-term contracts and services such as technical support and IT infrastructure paid for on a per-workstation basis. Regus was born in 1989 and within a short space of time Dixon had built the world's largest serviced office group with a presence in 52 countries.
For most of the 30-plus years Dixon has been in the serviced offices business world his company has been the big daddy of the sector, swallowing up rivals such as MWB Exchange, MLS and Stonemartin. WeWork is a relatively recent phenomenon, the new kid on the block for the past 10 years.
But the explosive growth of WeWork has from time to time drawn Dixon's ire. He enjoys denouncing its business model, or rather the willingness of global investors to buy into that business model while overlooking his business.
It is easy to understand his frustration, as Dixon has learned the hard way what works, has constantly evolved his company's offer in response to changing demand, and has been very happy to point out where his "noisy neighbour", the name he likes to call WeWork, has been going wrong.
Regus went public simultaneously on the London Stock Exchange and the Nasdaq in 2000, at the second time of asking, with a stock market value of £1.5 billion. But the downturn in the dotcom technology sector hit Regus hard, particularly in the United States, and by the end of 2002 Dixon had been forced to turn to its only remaining profitable territory, the United Kingdom, and sell off "the crown jewels" to keep his business afloat. Regus sold off a controlling 58% stake in the United Kingdom operation to private equity group Alchemy Partners, for £57 million.
By the beginning of 2003, Dixon had been forced to file for Chapter 11 bankruptcy protection in the United States as he pursued lease negotiations with landlords there, or "herding cats" as he described it. Within the year, Dixon had begun the fight back, reaching agreement for the business to be released from bankruptcy protection after agreeing a debt-for-equity swap with American landlords. His company issued around 70 million new shares in exchange for the cancellation of outstanding rent claims of £26 million and the renegotiation of lease terms.
By 2004, Regus had bought out its rival in the United States, and the number two serviced office company there, HQ, for £163.5 million, via a rights issue.
In 2006, Dixon had bought back that 58% stake in the United Kingdom business from Alchemy for £88 million, a good deal for Alchemy, but an even better one for Dixon, as he built the business back into what is now an undisputed giant.
Going Gets Tough
The tough times clearly led to Dixon learning some key lessons about the serviced office business model, traditionally built on long leases taken by the operator and then sold on short-term contracts to occupiers. Regus, for many years, almost entirely took space on long-term leases, rather than buying freeholds as some of its peers did.
The first lesson was not to expose the business too much to one particular booming sector or geography, in this case the dotcom tech boom in in the United States. The IWG business has offices pretty much everywhere, while WeWork has focused its efforts on prime buildings in major gateway cities.
In August this year, IWG reported record revenues as Dixon said it was riding the wave of a global pivot to hybrid working. The group had 3,398 locations across 120 countries, making it the largest global operator of flexible workspaces.
Dixon has not only spread his customer base and geographical focus but moved into multiple other business areas, particularly via franchisee agreements and partnerships with landlords, global access deals, and a £320 million merger with digital flexible offices marketplace Instant. Along the way Regus, which has rebranded as IWG and also owns the Spaces flexible offices business, has never really faced such difficult times again as 2002. The COVID-19 lockdowns did hit the business hard with IWG saying in 2020 it was facing the "toughest challenge" in the business's 31-year history. That led it to pursue a major estates rationalisation.
Dixon has moved to protect the parent company from individual lease exposures, with the business known for creating special purpose vehicles to own leases. Along the way he has not been shy of considering filing for bankruptcy protection for bundles of leases when areas of the market are tough.
CoStar News revealed in September 2020 that Regus plc, an entity of parent company IWG which guaranteed the leases of special purpose vehicles across its UK estate, had filed a notice of insolvency in British Crown dependency Jersey as part of the scaling back of its network at the time.
In the United States it also sought Chapter 11 bankruptcy arrangements covering more than 100 of its 1,000-plus locations.
The moves were intended to ensure the group had breathing space with landlords while it discussed its exit strategy and rent reductions but were attacked for allowing the group to walk away from leases without recourse to the parent. Regus plc provided rental guarantees to 15% of IWG's global network via guarantees to special purpose vehicles set up individually and separate to the parent.
These structures have not always made IWG a darling of landlords but the argument goes that it is not hidden and nobody signs a deal with IWG without understanding how it works.
Dixon has also moved the business further in the direction of management agreements and third-party arrangements where IWG is paid a fee for managing a location rather than taking on the lease liability which is more capital-intensive.
Since 2022 it has been refocusing the business on "capital light" management or franchise agreements with property owners and businesses, and in August said this is already feeding through to record revenue.
At a typically punchy investor call alongside its August results Dixon explained: "We are the bridge between the property industry who own properties and a new customer base that wants to use property in a new way. From a customer point-of-view demand is still strong."
Right Values
IWG has been the focus over the years of many reports that it will be taken private by major players such as Brookfield and Starwood Capital, but there has always been a seeming sticking point in Dixon's belief that his company is being undervalued, particularly during the period that WeWork was being valued at upwards of $47 billion. For a review in 2018 on the different values being attributed to Regus and WeWork and the parties that were linked to a takeover of IWG click here.
Dixon has never been shy of discussing his headline-grabbing rival WeWork. In August Dixon said: "In terms of our friends at WeWork it is the same business but a different model and that is what is causing them a problem. The space is wrongly fitted out. We have taken over maybe 50 WeWorks and we have to refit them and go again. The performance here would be better if they reshape in some way. This is an anomaly from a massive investment made a few years ago. It is unravelling but it will normalise."
It is by no means beyond the realms of probability that IWG will emerge as a takeover bidder for parts of WeWork, and it certainly says it is busy snaffling centres at present.
Monaco-based Dixon will know more than most how to make it work.