Sonder Jumps 137% as Marriott Throws Name Behind Struggling Firm

Sonder Holdings Inc. shares more than doubled after the alternative-lodging company reached a series of deals to raise capital and integrate its brand into Marriott International Inc.’s system.

The company, which operates more than 9,000 boutique hotel rooms and apartment-style short-term rentals, said in a statement Monday that it has commitments for $43 million in preferred equity and has secured $83 million of additional liquidity from existing lenders.

Sonder has also entered into a long-term licensing 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 program.

Sonder shares soared as much as 137% Monday after the deal was announced. They were up 93% to $5.05 at 12:49 p.m. New York time. Marriott was up 1.7% to $224.27.

The deals provide both short-term liquidity support and the potential to reaccelerate growth. Sonder’s market capitalization had plummeted to $29 million through the close of trading Friday from a peak of $2.3 billion 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.”

Non-Traditional Lodgings

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.

Read More: Sonder Takes Airbnb Aesthetic to Hotels in New York, London

Sonder expanded to 21 cities by 2019, when it raised $225 million in a funding round that valued the company at more than $1 billion, 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, Bloomberg reported at the time. 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.

Read More: Rental Firm Sonder Taps Moelis to Help Improve Financial Health

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.

Loyalty Points

Members of the massive Marriott Bonvoy loyalty program 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 travelers. Marriott is also providing $15 million 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 $83 million from existing noteholders includes $4 million 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. It dovetails with the hospitality industry giant’s growing focus on short-term rentals and continues the theme of large lodging companies using their heft to reach deals during trying times for smaller companies.

“Marriott has long believed in providing the right product at the right price point for all trip purposes and generations of travelers,” said Tim Grisius, Marriott’s global officer for mergers and acquisitions, business development and real estate. “With the planned addition of Sonder by Marriott Bonvoy, we will be able to provide guests seeking apartment-style urban accommodations with even more options.”

(Updates with share trading in fifth paragraph.)

To contact the reporter on this story:
Patrick Clark in New York at pclark55@bloomberg.net

To contact the editors responsible for this story:
Katherine Chiglinsky at kchiglinsky@bloomberg.net

Stephanie Stoughton, Christine Maurus

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