Knotel has announced plans to accelerate its transformation
into a more capital efficient business and reorganize its operations and
capital structure under new ownership.
As part of its strategic path forward, Knotel has reached an
agreement to sell the business to an affiliate of Newmark Group, Inc., the
commercial real estate firm. The Company has also made the decision to exit
multiple locations in the U.S. as part of the process.
To accomplish the sale of the business and a reorganization
of the Company’s U.S. footprint in the most efficient manner, Knotel and its
U.S. subsidiaries have filed voluntary petitions for relief under Chapter 11 of
the U.S. Bankruptcy Code in the United States Bankruptcy Court for the District
of Delaware (the “Court”). The filing does not include Knotel’s
Knotel has obtained a commitment for debtor-in-possession (“DIP”) financing from an affiliate of Newmark of approximately $20 million in cash. Subject to Court approval, Knotel believes this DIP financing will provide sufficient liquidity to support Knotel’s day-to-day operations during the process, including timely payment of employee wages and continuation of benefits, as well as working with customers and vendors.
Amol Sarva, Knotel Co-founder and Chief Executive Officer,
said, “After a thorough review of strategic alternatives, we have
determined that a process to sell our business and reshape our U.S. footprint
is the best path forward to maximize value for our stakeholders. The pandemic
created a uniquely challenging operating environment, with significant impacts
on leasing velocity and the rate of renewals in key markets, particularly New
York and San Francisco. We must address this now to position our business for
sustainable growth and a successful future.”
“Our restructuring will enable us to strengthen our
balance sheet, focus on a rightsized portfolio of locations, and maintain
relationships with our customer base while continuing to build on Knotel’s differentiated
service offering. We continue to believe in Knotel’s potential in the growing
flex market. We thank our talented team members for their continued hard work
and dedication toward fulfilling our vision of tailoring flexible workspaces on
a global scale so companies and their people are empowered to do their best
work,” Dr. Sarva added.
“We look forward to supporting Knotel through this transitional period,” said Newmark Chief Executive Officer Barry Gosin. “We are providing capital to Knotel so it can rightsize its business for the path forward.”
To ensure a smooth transition into Chapter 11, the Company
filed with the Court a series of customary “first day” motions,
including requests to continue to pay wages and provide health and insurance
benefits to employees in the normal course.
The Company also filed a motion requesting approval of a
stalking horse asset purchase agreement with Newmark and to initiate a process
under Section 363 of the Bankruptcy Code.
Milbank LLP and Fenwick & West LLP are serving as legal counsel and Moelis & Company LLC is serving as investment banker to Knotel.
Newmark has been an investor in Knotel since its early days. Just six months before the start of the pandemic, the workspace provider completed a $400 million financing round, led by Wafra, an investment arm of the Sovereign Wealth Fund of Kuwait and announced it planned to expand into the world’s 30 largest cities.
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