Shares in flexible workspace provider IWG are down an understandable 21% this morning after it called off takeover discussions with a trio of rival private equity suitors (Starwood, Terra Firma, TDR), saying none can offer a deal recommendable to the board. Understandable because it’s almost the mirror image of the 22.8% jump on 14 May when talks were revealed.

IWG’s move might have been considered a means of getting the trio to engage more and spice up some rivalry, however, they have already replied separately, saying they don’t intend to make formal offers. This puts them out of the frame for at least six months, removing the supportive element that had kept the shares around 300p.

First-half revenues did grow by 2.9% (7.1% excluding FX moves), however, EBITDA fell 10% and pre-tax profits dropped 33% as higher costs (marketing, overheads) and investment (infrastructure, talent) compounded UK market weakness. The company is still anticipates a short-term impact on revenue generation while several key UK centres are refurbished, however, it is also still reiterating full year guidance.

An 11% hike in the dividend suggests confidence, even after cash flow fell 13% and the net-debt to EBITDA ratio climbed from 0.8x to 1.1x. The shares are already 6-7%  off their 222p lows (revisit of Mar/Apr/May base), however, without hopes of a takeover investors will likely need to hear good news about the business itself and/or the global economy (it’s nicely geographically diverse) if that 250-300p gap is to be refilled.

Mike van Dulken, Head of Research, 6 Aug 2018