PE investors pursue strategic sale of The Executive Centre

The deal could value the company at more than $750 million, according to a source familiar with the situation. This assumes TEC, which generated approximately $200 million in revenue and EBITDA of $38 million last year, goes for a higher multiple than smaller rival Regus Japan. That business was sold in April for around $420 million, or an EBITDA multiple of 15.5x.

HPEF, formerly known as Headland Capital Partners, backed TEC in 2009. CVC acquired a majority stake in the business in 2014 at a valuation of approximately $220 million, leaving HPEF with a minority position, but accounting irregularities subsequently emerged, and the business needed to be recapitalized. HPEF partially bought back CVC’s position at the same price. HPEF now holds 70%, CVC has 20% and management has the rest.

TEC was established in 1994 by Paul Salnikow, a New Yorker who was deployed to Hong Kong by his then employer and looked for a serviced office only to find there weren’t any. When HPEF invested, the company had 28 centers and revenue was around $50 million. Revenue more than doubled over the next five years as TEC expanded to encompass 61 centers across 20 cities in 10 countries.

CVC invested with a plan to reach 100 centers by 2019 and achieve an enterprise value of more than $1 billion. There are now more than 130 properties across 32 cities, including one in the Middle East. Mainland China is the largest market. The company provides exclusive workspaces for companies and individuals, co-working spaces and virtual offices, and business services ranging from company formation to IT consulting to full-service administration.

Flexible workspaces – an umbrella term that refers to office accommodation that is rented on a short-term basis, not co-working spaces specifically – are proliferating in Asia. The flexible workspace footprint grew by 45% between 2015 and 2018, compared to 29% in the US, according to JLL. LEK Consulting estimates the market is still only half the size of the US by value, at $3-4 billion, while it accounts for just 1-1.5% of total office stock. In the US, it is 1.5-2%.

Co-working spaces are benefiting from this trend – and they have attracted considerable amounts of private funding. WeWork has been expanding aggressively in Asia, acquiring Singapore counterpart Spacemob in 2017 and Greater China-focused Naked Hub in 2018. Last year, the company also secured $500 million in Series B funding for its dedicated China unit.

WeWork confirmed this week that it had made a confidential filing for a US listing. The company was valued at $47 billion in January, although its net loss for 2018 was said to be $1.9 billion. If WeWork is a technology-enabled mass-market platform, TEC positions itself as a premium player with more of a focus on private offices. The two models are converging – and to Salnikow, this makes the notion that a co-working space provider could be valued like a tech start-up even more bemusing.

Speaking to AVCJ in 2017, he said: “We are valued at $400-450 million, or an EBITDA multiple of 10-12x earnings. It is inexplicable to me how WeWork is not a serviced office business valued at 10-12x – it rents floors and puts in lounges and glass-box offices – but a technology company valued at 160x. We’ve led with the network and the profitability of the business and we are valued on a traditional basis. This operator is promoted as something else.”

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• Topics
• Trade sale
• Real estate
• Support services
• Greater China
• Asia
• Headland Capital Partners
• CVC Capital Partners