Company Announcements

MIAMI , Sept. 10, 2024 /PRNewswire/ -- Buckley Capital Management, LLC, together with its affiliates (collectively, "we" or "Buckley"), a top 15 shareholder of International Workplace Groupplc (LSE: IWG) ("IWG" or the "Company"), today issued an open letter to IWG's Board of Directors and management team regarding opportunities to maximize value for all shareholders.

A full copy of the letter is below:

Dear Members of the Board of Directors and Management:

Buckley Capital Management, LLC, together with its affiliates (collectively, "we" or "Buckley"), is a long-term shareholder of International Workplace plc ("IWG" or the "Company").

As you know, Buckley Capital Management is a Miami-based investment firm specializing primarily in North American small and mid-cap value stocks. Our focus is on identifying and investing in high-quality companies with strong growth potential trading at an attractive value multiple. This typically means businesses that are trading below 10x earnings that are growing earnings more than 10% per year. The average PE multiple in our portfolio today is 9x with a 17% average earnings growth rate. We collaborate closely with boards and management teams to unlock value and drive sustainable long-term growth, benefiting all shareholders. We are trusted to manage capital on behalf of family offices, foundations, ultra-high net worth and high net worth individuals. In addition, with 95%+ of our Partners' investable net worth committed to our funds, we ensure a strong alignment of interests with our investors and the companies in which we invest.

Over the past few months, we have greatly appreciated your constructive engagement as we've shared our detailed perspectives and concerns regarding the Company, along with our recommendations for enhancing long-term value. We have been particularly impressed by the recent changes that have been implemented regarding investor relations and management guidance. We believe that IWG is misperceived by the investment community as lacking sufficient credibility, which is a primary reason for the mispricing of the Company's shares. However, the Company's new CFO and head of investor relations have taken the thoughtful approach of under promising and over delivering. Accordingly, the Company has started to beat consensus estimates since they joined, after a long history of past disappointments. We view the Company's mid-term targets as highly conservative and believe that as the market begins to recognize this in the coming year the valuation will adjust to reflect its attractive growth and business transformation. We have enjoyed our dialogues with Charlie Steel and Richard Manning. In our most recent meeting on August 29^th, we discussed in detail why we believe the Company should embark on a share buyback program when the company reaches 1x net debt/EBITDA and commit to the market that the Company will pursue a US listing in short order. We outline these recommendations further in this letter.

We have chosen to issue this letter publicly to encourage an open and transparent discussion around our recommendations. By engaging all shareholders in this important dialogue, we can ensure that all parties have the opportunity to consider our perspectives and contribute to the conversation on enhancing long-term value. Based on our prior conversations with other shareholders, we believe the ideas outlined in this letter would be strongly supported by your investor base and we encourage you to speak with them.

IWG is an Exceptional Company with Solid Fundamentals, Positioned to Lead in the New Era of Work

We were initially compelled to invest in IWG in February 2023 due to our confidence in the business' ability to grow FCF/share at over 25% per year and our belief that with the success of the managed and franchised model that the Company would eventually trade at 9-11x EBITDA. We thought there was 300-600% upside in IWG's shares over a multi-year time frame as management executes a strategy we believe has a high probability of succeeding.

Over the last 35 years, IWG has executed to become the undisputed leader in the coworking office market. The Company is now best positioned to benefit from the secular trend towards flexible leases and is in the process of transforming its business to a managed and franchised model with significantly lower capital requirements, higher cash conversion and greater stability. The Company has increased its group revenue from approximately £2.65 billion in 2019 to an expected £3.44 billion in 2024.¹ This growth has come despite facing two major headwinds in the past decade that are now behind: (1) COVID, and (2) a well-funded competitor (WeWork) who incinerated enormous amounts of capital attempting to grow, thereby suppressing industry returns. More importantly, IWG's growth profile is now set to materially inflect while its net growth capital expenditure should significantly decline, from £142.5 million in 2021 to £40 million in 2024. Based on the Company's market dominance, accelerating growth, lower capital requirements, higher FCF conversion, and greater stability, we believe that IWG's shares should be trading at a higher valuation multiple today than in the past.

Undervalued and Misunderstood, Despite its Outstanding Position

Despite these factors, and the fact that the Company's adjusted EBITDA is on track to reach a record high this year, the Company's share price continues to languish and is currently down approximately 50% over the last five years. It is clear to us that there exists a significant dislocation between the current share price and the intrinsic value of the Company, despite management's efforts to improve communications and financial disclosures to the investor community. This growth in EBITDA, combined with a decline in its share price, has caused the Company's valuation to compress from 7.2x EBITDA in 2019 to 5.1x consensus 2024E EV/EBITDA today.² Now trading at less than 10x 2025 FCF, with FCF/share expected to grow at a 25%+ rate, we believe the shares are dramatically undervalued given the quality and predictability of the Company's future growth, prospects for margin expansion, and stronger free cash flow generation.

We agree with the Company's assessment that IWG's capital-light platform model aligns more closely with comparable platform businesses, rather than traditional brick-and-mortar serviced office companies it tends to be likened to. Companies operating in this way typically command significantly higher valuation multiples. While there are no exact comparables for IWG, the comp table in the Appendix to this letter shows the disconnect between IWG's valuation and the valuation of Managed and Franchised and Worka Segment Comparables. Our analysis indicates a notable share price discrepancy relative to these comparables, suggesting a Fair Value closer to GBP 3.92, reflecting a significant gap between the Company's robust fundamentals and its current market valuation.

We are concerned that efforts by IWG's management to articulate the investment merits of the Company have fallen on deaf ears, and further action needs to be taken to unlock the Company's intrinsic value. Therefore, we believe the Board should initiate a major share buyback as soon as the Company reaches its 1x net debt/EBITDA target. Simultaneously, we believe that the Board should expedite the re-listing of IWG's shares onto a US stock exchange.

We urge the Board to Execute a Share Buyback Program

The transition to a capital-light model has produced a significant boost to IWG's free cash flow conversion. We hope that 1x net debt/EBITDA is not the intended capital allocation policy long term. We believe a higher net debt to EBITDA - between 1.5-2.0x - makes sense longer term allowing IWG to be more aggressive with buybacks. Our analysis demonstrates that IWG could return over £2bn to shareholders through free cash flow and capital structure optimization between now and 2028, which would total more than the market cap today. While we understand it makes sense to be at 1x net debt/EBITDA in the short term, we would like to see the longer-term leverage levels higher given the shift to a higher quality revenue stream in the managed and franchised business.

As the Company's capital-light model begins to generate significant fee income in the next 12-24 months, the valuation multiple of IWG should rise significantly. We are very encouraged by the strength of the early cohorts in the Managed and Franchised segment and believe that will be a significant driver of value going forward, with a positive inflection in 2025. Therefore, it is imperative for the Company to start buying back shares as soon as the 1x net debt/EBITDA target is reached to take advantage of the significantly discounted prices that exist today. Our analysis shows that IWG shares can generate a 30% IRR or better from today's prices, which can be improved by an accelerated share repurchase.

IWG Belongs on a US Exchange

We believe that moving IWG's listing to the US presents a strategic opportunity to enhance shareholder value and we support the Company's efforts to explore this option.

The Company already has a meaningful presence in the US, despite trading in the UK: 50% of its revenues and more than 50% of profits are generated in North America. It is for this reason that the Company has already taken steps to adopt the American GAAP accounting standard and switch its reporting currency to USD.

In addition to this, trading on the London Stock Exchange is not rewarding IWG with the valuation multiple we believe it deserves. In contrast, we believe that a US listing would expose IWG to a new and more liquid market with investors who have greater appreciation of its leverage levels and business model. Additional positive share price impact can be expected from more passive buying from US indices than passive selling from UK indices. The more efficient capital market in the US can help the Company realize intrinsic value in a timelier manner, which the UK market has failed to do over the last five years.

As an example, CRH plc, a leading provider of building materials based in Ireland, is a successful case of a European company benefiting from a US listing. Since moving its primary listing to the US on September 25th, 2023, CRH's stock price has increased 51.4%. We believe IWG choosing to re-list in the US would allow the Company to garner a higher multiple and potentially use its stock as a currency for acquisitions.

The management's decision to switch its reporting currency and adopt the American GAAP accounting standard is a step in the right direction. However, we urge management to accelerate its efforts and commit to a US listing immediately. Expediting these steps will allow IWG to fully capitalize on its North American business, enhance public-market multiples, and unlock significant shareholder value.

Sale to Private Investors

If a US listing and share buybacks do not cause a significant rerating in IWG's shares, we are convinced that management should explore a sale of the business in the private markets to realize the Company's intrinsic value.

There has been rumored interest in 2018 from financial buyers at prices much higher than current levels, between 9-10x EBITDA. Firms such as Terra Firma, TDR Capital, Starwood, and Lone Star were rumored to have expressed interest back in 2018. Today, IWG is in much better shape, with a higher quality revenue mix, greater profitability, significantly improved competitive position, and clearer growth prospects. Yet it is trading at a significantly lower multiple. Given the significant interest in the past, if the public market fails to recognize IWG's value, we strongly recommend that management consider selling the Company.

There are a litany of public-company comparables that point to significant upside in IWG. The average of public-company comparables for the Worka and Managed & Franchised segment trades at an average NTM EBITDA multiple of 12.5x and 15.6x respectively. IWG's Owned & Operated segment has historically traded at ~7.5x over the past 20 years. These valuations would lead to significantly more than 100% upside for IWG shareholders from today's levels.

Conclusions

While we have been encouraged by our discussions with the Company thus far, the Board and management must take more immediate action to fully unlock the true value of the Company. As such, we strongly encourage the Board to embark on a meaningful share buyback program and to immediately appoint advisors to proceed with a relisting in the US.

The time for action is now—these steps are crucial to ensuring that the Company realizes its full potential and delivers the value that shareholders deserve.

We aim to work collaboratively and constructively with the Board and management to maximize shareholder value and look forward to continuing a positive dialogue.

Sincerely,

Zack Buckley
Buckley Capital Partners LP

 

About Buckley Capital:
Miami-based investment firm specializing primarily in North American small and mid-cap value stocks.

 

Appendix

Below is a list of Public Comps for IWG:

 

Worka Segment Comparables:

 

Managed/Franchised Segment Comparables:

 

Private Market Bid for IWG:

 

Sum of the Parts Valuation:

 

*Refers to Contribution margin as opposed to EBITDA

 

Contacts
For Investors:

Buckley Capital Partners LP
Zack Buckley
Zack@buckleycapitalpartners.com

For Media:

Greenbrook Advisory
Rob White / Teresa Berezowski
BuckleyCapital@greenbrookadvisory.com

 

¹ NTD –Bloomberg data
² NTD – Bloomberg data
^{3 - Refers to Contribution Margin as opposed to EBITDA}

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