One of the most common fallacies in business is the concept of a merger. There is no such thing. You’re either the acquirer or the acquired. The acquirer wins and can do whatever they decide with the company that’s acquired. Too often, when a merger is announced, it’s a euphemism for “We own you.” When WeWork acquired Meetup [in 2017] about 11 months prior to my joining, they told employees the acquisition was a merger — but that didn’t fully convey what had happened.
It has always appalled me how companies are often reluctant to tell the truth to acquired entities, saying something like, “We’re combining forces, but we see each other as equals. We’re looking to learn as much from you as you from us. We want you to maintain your identity and special culture.” They should just be honest and say, “We acquired you. We probably overspent in doing so. We aren’t equals. We own you. You have a lot you can learn from us, and we expect you to change your culture so you can be successful like we are.”
That’s how WeWork saw Meetup. WeWork had spent $156 million to acquire Meetup. WeWork acquired Meetup for a few reasons:
- WeWork wanted to differentiate its real estate offering and build real community in its buildings. And what better company to build community than the largest community platform in the world — Meetup?
- WeWork wanted to ensure that its valuation multiple would be a “tech multiple.” Meaning, WeWork wanted to justify its outsized valuation by presenting itself as a tech company — and Meetup supported that thesis.
- Because [WeWork co-founder] Adam Neumann wanted to.
Let’s take these in reverse order. Adam met Meetup’s founder, Scott Heiferman, and the two immediately connected in the way that two founders often do. They both were deeply mission-driven. They both believed in the power of people and gathering spaces to dramatically improve the human experience. They both really wanted to make the world a better place. For all the negative sentiment written about Adam Neumann, I have full certainty that he believed he was put on this earth to make the world a better place — a place where people connected to themselves and to others more deeply than they do today. Scott shared a similar belief system. Within weeks of their meeting, they were already talking about a sale.
While the negotiations were tough, the two CEOs were able to resolve key points of difference like adults. For example, when there was a meaningful gap in valuation during the negotiating process, Scott and Adam decided on a unique way to finalize the price. Scott gave Adam a Meetup T-shirt to wear during Adam’s upcoming trip to Israel. Scott told Adam that if he spent the day in Tel Aviv wearing a Meetup T-shirt and no Israeli commented to Adam about what a great company Meetup is, Scott would give in to Adam’s demands. Now, if that isn’t the way to finalize a gap in the price Adam wanted to pay compared to what Scott would take, I don’t know what is.
Scott, as it turned out, won that bet. More notable is that both sides were basing their valuations mostly on storytelling and not on true financial realities. In certain ways, they both ultimately lost: WeWork due to overpayment, and Meetup due to setting high expectations on valuation that could never be justified. As noted earlier, be data-driven.
During the interview process, nearly all the WeWork executives besides Adam informed me they were against acquiring Meetup. So the head honcho of the company wanted it, while nearly every other WeWork leader with whom I needed to collaborate believed that acquiring Meetup was a mistake. Well, if the head honcho is Adam Neumann, he wins. Adam wanted it, and he got what he wanted.
Meetup was a Web 1.0 tech company. Everyone in Silicon Valley knew about Meetup. Hell, most of the venture capital investors had likely met founders and partners by attending Meetup events. The company had an incredibly strong brand in the tech community, and Adam wanted to ensure that WeWork was synonymous with tech. WeWork wasn’t just a more stylish shared workspace with more kombucha and fewer walls. WeWork was being valued at more than 10 times the value of its largest competitor because it was a “tech” company. The problem, however, is that WeWork wasn’t a tech company. Not at all. WeWork leased real estate and then subleased it at a high premium. Truth be told, the rationale for acquiring Meetup to gain further tech company street cred was quite brilliant.
But the most significant rationale for the acquisition, and one that both sides deeply believed had the greatest potential, was the fact that Meetup organizers often need to find venues to host Meetup events, and WeWork was looking for more events in its spaces to deepen the community bonds of its sublease tenants. The acquisition would solve a core need of each party and create a symbiotic relationship.
But it didn’t work that way, and here is my read on the situation, based on what I saw. It was quickly apparent to both parties that the entire rationale for acquiring Meetup was flawed. More than 80 percent of Meetup events happen during the evenings and on weekends — the exact times that WeWork members aren’t even in the building. Meetup couldn’t provide events when their events were at totally different times from when WeWork members were using WeWork spaces. Despite the proliferation of WeWork buildings throughout the world, fewer than 20 percent of Meetup events were even in close enough proximity to a WeWork to be able to leverage its spaces. Finally, a meaningful percent age of Meetup events either were too large to fit in a WeWork conference room or were sport and outdoor events. Frankly, WeWork wasn’t too keen on flag football around its open floor plan. Taking all these factors into account, fewer than five percent of Meetup events were at times and locations or of a type to be able to leverage WeWork.
The company was sold for $156 million with the premise that both companies would see meaningful synergies. (Note for nonfinancial readers: “Synergies” is a word used by companies to describe ways in which a company will grow revenue or profit through an acquisition and thereby justify a high purchase price. It’s the business-speak equivalent of “We’re staying together for the kids.” No one ends up healthy.) It’s not just that Scott couldn’t tell Adam the premise was false; Meetup devoted massive employee resources to projects to link WeWork’s open conference rooms to Meetup organizer needs. Instead of Meetup focusing on helping 95 percent of its members, it would disproportionately aim to help this small subset as justification for the deal. So much for sunk costs.
After two months as CEO, I shut the entire effort down. It wasn’t working and was being pursued only because WeWork hadn’t been pragmatic and Meetup hadn’t been honest. I refused to make the same mistake.
David Siegel C97 WG03 is CEO of Meetup and host of the podcast Keep Connected.
Published as “The Parent Trap” in the Spring/Summer 2022 issue of Wharton Magazine.
