The CEO of a coworking software startup explains how he inked a deal to buy a smaller rival in the midst of the coronavirus pandemic - and why he sees more consolidation in the space

Proximity

Coworking company proximity just bought a rival software company.

• Coworking company Proximity, which operates spaces and software used by hundreds of companies, just bought a rival software company.
• Proximity's CEO explained why it made sense to get a deal done in the middle of a pandemic, even as spotty WiFi interrupted his calls with the target company.
• Since coworking spaces are largely closed, customers can transition from one software to the other without interruption to customers.
• Proximity CEO Josh Freed said he expects more consolidation, with dozens of competitors that have popped up in the last decade.
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As major coworking companies slash staff and back out of rent payments, one small company views the coronavirus pandemic as a time to expand.

Proximity, a software company used by more than 600 coworking brands, bought a smaller rival software company in a deal that closed this week, Proximity's CEO Josh Freed told Business Insider.

Freed declined to disclose terms of the deal for North Carolina-based SMPL, but he said it was the first of more acquisitions to come for Proximity, which was founded in 2017. The SMPL deal adds about 140 customers to Proximity's 600, and Freed said he's aiming to work with 1,000 coworking companies by the end of the pandemic.

"While it's counterintuitive to be trying to expand right now, Proximity is not backing down. We're not taking a drop-back, maintenance position," he said. "This is the time period for us to push forward."

Proximity offers tools to help coworking tenants manage their memberships, book space, and register for events.

Freed said he expects further consolidation in the coworking software space, with dozens of competitors that have popped up in the last decade.

"Our industry, much like others, is coming off of a really big boom - a 10-year-period of a lot of software being developed and a lot of layers of software being developed for the same tools. How many project management software do you need?" Freed said.

Struggling coworking giant WeWork had bought Managed by Q, a facilities management software platform, for for $220 million in April 2019. WeWork, which has been jettisoning or shuttering noncore businesses, sold Managed by Q to facilities-management competitor Eden for just $25 million in March, and slashed most of Managed by Q's staff in the process.

In January, WeWork sold off Teem, which offers meeting-space management, to workplace solutions provider iOFFICE for an undisclosed amount. WeWork bought Teem for $100 million in 2018.

Proximity's deal started coming together before the coronavirus when Freed approached SMPL's executives, who he had long known through the industry. They managed an in-person meeting 3 weeks before the pandemic started shutting down travel and did the rest of the meetings by video calls - the new model for deals across industries for the coming weeks and months.

Freed said the biggest wrinkle in the deal coming together was less-than-stable broadband at his home in western Colorado.

"I'm trying to have very in-depth acquisition conversations and they're like, 'did you freeze? Where did you go?'" he told Business Insider by video call. "This is a hurdle. This isn't as easy as saying, 'Hey, let's get together for a dinner and we'll get all this hashed out.' ... At the same time as the call, school is going on, so I'm in a kid's bedroom because it's the only place I can get quiet."

Freed highlighted one benefit to doing a software deal during the pandemic: easy changeover for customers. The coworking spaces have weeks, if not longer, before their customers return, so they have plenty of time to switch platforms.

The coronavirus has put immense pressure on coworking operators as space sits empty and they're still on the hook for rent, forcing some to take drastic measures.

As Business Insider has reported, flex-space company Knotel has slashed staff and delayed some rent and vendor payments. It also missed sales targets by a wide margin in 2019. Convene, a workspace and conference company, is also cutting the rent payments it makes to landlords across its portfolio.

WeWork is taking similar actions at some of its properties, according to media reports.

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