IWG PLC on Friday said it plans to merge some of its digital and technology assets with The Instant Group, before demerging the entity through a stock market listing by the end of next year.

IWG separately posted a significantly narrowed annual loss thanks to lower cost of sales.

Shares in the flexible workspace provider jumped 12% to 259.90 pence each in London on Tuesday morning.

On the merger, Luxembourg-based IWG said it will invest £270 million to acquire the shares of selling shareholders and provide capital for growth, with The Instant Group management investing a further £50 million into the merger.

The Instant Group is a flexible workspace platform and services provider which operates in North America, Europe and Asia.

Essentially, the merged business will provide a platform for booking, services and inventory management - similar to models seen in the travel and hotel sectors. It will also be operated independently by The Instant Group.

‘The company will deliver end-to-end solutions including virtual offices, meeting rooms, flexible workspace and client dedicated managed offices. The Instant Group also has world class consulting capability to tackle ever more complex challenges such as hybrid working, new portfolio strategies or sustainability in the workspace,’ IWG said.

The merged business is expected to nearly double its earnings before interest, tax, depreciation and amortisation in 2022 to around £31 million, IWG said. Post the merger, and with synergies, Ebitda is expected to be ‘significantly higher’.

By the end of 2023, the merged company will be spun out via a listing on US or UK markets.

Separately, IWG reported a narrowed loss in 2021 of £259.4 million, trimmed from 2020’s loss of £613.3 million.

The narrowed loss was driven by a 21% plunge in cost of sales to £1.89 billion from £2.38 billion.

Meanwhile, revenue slipped 8.2% to £2.23 billion from £2.43 billion.

‘Scale is essential for us to offer the convenience that employers and employees everywhere are looking for and it is our unrivalled network with four times the number of locations, compared to our nearest competitor, that provides a unique opportunity to capitalise upon these structural changes to drive improved returns,’ Chief Executive Mark Dixon said.

IWG did not declare any dividends in the year, unchanged from the year before. In 2019, IWG paid out 6.95p per share in dividends.

‘Future dividend payments and a restart of our share repurchase programme are placed on hold for the moment with a clear intention of the earliest possible return to our stated shareholder return policy,’ IWG said.

Dixon said: ‘As we enter 2022, our focus is sharper than ever. Our goals are clear. I believe that with 3,314 centres, we are operating at only a fraction of our underlying potential of 30,000 centres. I also believe that the optimal proportion of IWG-owned centres in the future will be 10% at most. Today, conventional leases represent approximately 65% of our global portfolio, we expect to end the year with franchises, partnerships and management agreements reaching close to 50%.’

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