Sonder collapses after spending nearly $3.7 million on now-defunct Marriott deal

Canadian-founded and San Francisco-based alternative lodging company Sonder Holdings is winding down its operations following the termination of its licensing deal with hotel giant Marriott International.

The company announced this week that it will wind down operations “immediately” and that it expects to initiate a Chapter 7 liquidation of its United States business while starting insolvency proceedings in its international markets. The announcement came one day after Marriott said that its licensing agreement with Sonder was “no longer in effect due to Sonder’s default.”

The insolvency comes just five months after Sonder co-founder and CEO Francis Davidson left the company. Davidson navigated the firm through multiple challenges and liquidity issues in recent years, including earnings accounting errors that resulted in lawsuits and layoffs in the post-COVID-19 hospitality landscape.

Sonder spent nearly $3.7 million on the Marriott integration this year, according to its Q2 earnings.

After stepping down, Davidson said securing the 20-year strategic licensing agreement with Marriott in August 2024 was “the hardest thing” he’d ever done. The deal placed Sonder’s inventory in Marriott’s portfolio under the “Sonder by Marriott Bonvoy” banner. In exchange for making its units bookable through Marriott’s website and loyalty program, Sonder paid royalties to Marriott.

However, Sonder said in a statement that it “faced severe financial constraints” and delays that arose from integrating its systems and booking arrangements with Marriott’s, among other unspecified factors. Now, Marriott says that Sonder is no longer affiliated with Marriott Bonvoy, and that Sonder properties are no longer available for new bookings on its channels.

The sudden termination of the deal left countless travellers in the lurch as they were informed that upcoming and ongoing bookings were suddenly cancelled.

Sonder had been shuttering some of its lodgings since 2023 as part of its portfolio optimization plan, according to its most recent earnings report. Posts on the Ottawa subreddit indicate that two of its locations in the city abruptly shut down in September to be converted into apartments. An image of a closure notice posted by one commenter reads, “this property no longer has any affiliation with Sonder. ”

Sonder interim CEO Janice Sears said the Marriott integration challenges led to“significant, unanticipated” costs as well as a sharp decline in revenue from participating in Marriott’s Bonvoy reservation system. According to Sonder’s Q2 earnings report last month, the company had spent nearly $3.7 million on integration in the first half of this year.

“These issues persisted and contributed to a substantial and material loss in working capital,” Sears said. “We explored all viable alternatives to avoid this outcome, but we are left with no choice other than to proceed with an immediate wind-down of our operations and liquidation of our assets.”

Sonder said it evaluated financing and other options, including a sale of its business and operations, to improve its financial condition. However, it was unable to close a viable transaction or obtain additional liquidity after engaging “numerous strategic and financial parties.

In its first-quarter earnings earlier this year, Sonder indicated that its “liquidity may be insufficient to meet its obligations” for the next year, and that there was “substantial doubt” about its ability to continue operations. Sonder provided the same caveat in its second-quarter earnings last month, which noted it had received $15 million from Marriott to date and amended its deal to “defer certain fees and other amounts” owed to the hotel chain for up to a year.

Sonder notified the US Securities and Exchange Commission (SEC) of several executive changes in recent months, including the departure of CFO Michael Hughes in August and co-founder Martin Picard, who acted as chief real estate officer, in September. According to filings with the SEC, Picard left the company with “plans to participate” in a potential bid on Sonder. BetaKit has reached out to Picard for comment but did not receive a response by press time.

Later that month, Sonder appointed Paul Stewart Aronzon and Jeffrey Stein to its board. In its filings to the SEC, Sonder highlighted how Aronzon has “worked as a leading consultant in corporate restructurings and reorganizations,” while Stein previously served as chief restructuring officer for investing platform Linqto.

Sonder was founded in Montréal in 2012 by Picard, Davidson, and Lucas Pellan under the name Flatbook, but later moved its headquarters and incorporated in the United States. The company operated over 9,000 rental properties in 10 countries as of 2024, from apartment-style accommodations to boutique hotel rooms.

Though travel demand rebounded after COVID-19, Sonder struggled after going public in early 2022 at a $1.9-billion USD valuation through a special purpose acquisition company. The company’s stock price on the Nasdaq nosedived from roughly $200 USD per share to less than $2 USD when Davidson left, and trades at $0.17 USD per share as of this writing.

Sonder said that additional information around court proceedings and its wind-down, including an update on its operations outside the US, will be made available “in due course.”

Feature image courtesy Sonder.