Sonder said it has commitments for US$43mil in preferred equity and has secured US$83mil of additional liquidity from existing lenders.— Bloomberg
NEW YORK: Sonder Holdings Inc has reached a series of deals to raise capital and integrate its brand into Marriott International Inc’s system, as the alternative-lodging company seeks to strengthen its financial health.
Sonder, which operates more than 9,000 boutique hotel rooms and apartment-style short-term rentals, said in a statement on Monday that it has commitments for US$43mil in preferred equity and has secured US$83mil of additional liquidity from existing lenders.
The company has also entered into a long-term licencing agreement that will make its properties available on Marriott’s platforms under the “Sonder by Marriott Bonvoy” banner.
Sonder will pay royalties to Marriott in return for making its lodging inventory bookable through the larger company’s website and loyalty programme.
The deals provide both short-term liquidity support and the potential to reaccelerate growth.
Sonder’s market capitalisation has plummeted to US$29mil through the close of trading last Friday from a peak of US$2.3bil in February 2022.
“We feel confident that we have a business that works and can be expanded,” said Sonder chief executive officer Francis Davidson, who expects the Marriott partnership to “drive incremental demand and cost savings that will accelerate our path to profitability”.
Founded in 2014, Sonder quickly joined a wave of firms launching businesses on the back of Airbnb Inc’s success, offering non-traditional lodgings.
In Sonder’s case, that meant combining the apartment-style lodgings popular on home-sharing websites with the professional management found in hotels.
Sonder expanded to 21 cities by 2019, when it raised US$225mil in a funding round that valued the company at more than US$1bil, leading Davidson to boast that his company would be generating more revenue than Marriott by 2025.
Since then, little has gone according to plan.
Covid slammed the travel industry in early 2020, cratering demand. Lodging recovered, allowing Sonder to go public through a merger with a special purpose acquisition vehicle.
But higher interest rates soon ratcheted up pressure on money-losing companies to focus on profit over growth.
By May, Sonder had enlisted Moelis & Co to explore options to put the company on firmer ground financially.
Around then, Sonder told investors that it wouldn’t file quarterly results on time and that earlier financial statements shouldn’t be relied on.
One focus has been renegotiating leases in the buildings where the company offers lodgings.
The agreement with Marriott, which lasts for 20 years with potential extensions, has the potential to ease financial pressure by providing Sonder with a means of winning bookings that is cheaper than partnerships with online travel agencies such as Expedia.
Members of the massive Marriott Bonvoy loyalty programme can earn points for staying with Sonder and redeem points at the properties.
Davidson hopes that Marriott’s global sales force can help his company make inroads with business travellers.
Marriott is also providing US$15mil in so-called key money, industry parlance for cash that lodging brand companies provide to add rooms to their systems.
The infusion of liquidity will give Sonder time to integrate with Marriott, a process that’s expected to be completed in 2025.
The US$83mil from existing noteholders includes US$4mil in new financing, as well as an extension on the paid-in-kind period on existing loans.
The deal with Sonder follows Marriott’s licensing agreement with MGM Resorts International and allows Marriott to add a large number of rooms in a single transaction. — Bloomberg
