BY ED CROPLEY

IWG is showing the value of self-destruction. Shares in the British office-sharing group soared more than 20 percent on Monday morning after it sold its Japanese business for 320 million pounds. Although still in a different building from younger and trendier rival WeWork, the deal gives a glimpse of the riches hidden behind its workstations.

Founder Mark Dixon realised that companies and people wanted short-term, ready-to-use office space when he launched Regus in the late 1980s. But being first hasn’t translated into being the most valuable. After Monday’s bounce, IWG, as the listed parent company is now known, had a market value of 2.9 billion pounds ($3.8 billion), or 1.2 times last year’s sales. Private WeWork’s most recent valuation of $47 billion is an eye-popping 26 times revenue.

Dixon lacks the financial muscle of Masayoshi Son, whose SoftBank Group is a major WeWork backer. Given the Japanese tech group’s clout in its home market, IWG is probably right to avoid direct competition. But selling its Japanese unit to local rival TKP points to some hidden sparkle in the rest of the business.

The price tag works out at more than 15 times the division’s EBITDA last year. That’s more than twice the multiple that investors attached to the whole of IWG, including 451 million pounds of net debt, before the announcement. Apply the same valuation to the entire group and its equity market value would be 5.6 billion pounds.

IWG’s other businesses, which it also plans to sell, are unlikely to fetch the same juicy price. The Japanese business was more profitable than the overall group last year, with an EBITDA margin of almost 22 percent, against 15 percent for the company as a whole.

But investors are clearly treating the sale of 150 Japanese offices as an appetising sushi starter to the rest of IWG’s businesses, which run 3,250 outlets globally. After stripping out last year’s Japanese earnings and including the cash proceeds, the company now trades at just over eight times EBITDA.

Dixon last year twice called off talks to sell IWG because the price was too low. The latest sale suggests dividing may be the key to conquering the company’s discount.

First published April 15, 2019