Montréal-founded travel tech startup Sonder is set to go public on the NASDAQ through a merger deal with Gores Metropoulos II Inc.
Sonder co-founder and CEO Francis Davidson officially announced the plans on Friday and SEC filings confirm that special purpose acquisition company Gores has entered into an agreement with Sonder.
“[This deal] will enable us to accelerate our growth on the path to build the iconic 21st century brand in hospitality.”
According to the companies, Sonder expects to raise $650 million USD of cash proceeds through the deal, which is expected to bring Sonder’s enterprise value to $2.2 billion. The value reportedly represents a 3.6 times increase in Sonder’s projected revenue for 2022. Existing Sonder stockholders are set to retain 74 percent ownership in the company.
As reported by Bloomberg, the transaction includes a $200 million private placement led by an affiliate of Gores Group, the investment firm founded by the SPAC’s CEO Alec Gores, and includes participation from Fidelity Management & Research Company, funds and accounts managed by BlackRock, Atreides Management, entities affiliated with Moore Capital Management, Principal Global Investors, and Senator Investment Group.
“We are incredibly excited about this transaction with Gores Metropoulos, which we view as a natural extension of our longstanding relationship that will enable us to accelerate our growth on the path to build the iconic 21st century brand in hospitality,” said Davidson.
It is hoped that the merger of the companies will provide Sonder with additional “capital and expertise to accelerate and supercharge Sonder’s vision.” The company stated the deal will allow it to further capitalize on opportunities within the global lodging market industry, which it says presents a more than $800 billion opportunity.
“Over the next few years, Sonder plans to continue investing in technology and expanding its footprint and product offering to drive an unparalleled guest experience, while also delivering even greater value to its real estate partners,” the company stated. Sonder expects to achieve approximately $4 billion of revenue in 2025, driven, it said, by “significant real estate supply growth, global travel market recovery and revenue enhancement initiatives.”
The proposed merger was unanimously approved by Gores Metropoulos’s and Sonder’s board of directors on Thursday and is expected to close in the second half of 2021. It remains subject to approval by Gores Metropoulos’s stockholders and other customary closing conditions.
Following the closing of the deal, Sonder will retain its management team, with Davidson continuing as CEO and Sanjay Banker as president and CFO.
Sonder has raised more than $560 million to date, with its Series E round in 2020 giving the company a $1.3 billion valuation. Its backers have included Fidelity, WestCap, ScaleUP Ventures, Real Ventures and Inovia Capital, among others. Gores Metropoulos raised $450 million in a January initial public offering.
Sonder was founded in Montreal in 2012 under the name Flatbook, while Davidson was a student at McGill University. Two years later, Sonder moved its headquarters to San Francisco and incorporated in the United States, in the pursuit of international investors. As BetaKit reported last year, Sonder has since put renewed focus on Canada, opening a second headquarters in Montreal.
The company offers a platform that manages short-term rentals in North America and Europe. Sonder seeks to sign multi-year leases in residential buildings and rents rooms out to travellers or business travellers. The company claims more than 300 properties in 35 global markets.
“The perspective and insights that Francis and Sonder have revealed to us on their startup journey, from the 30 minute FounderFuel pitch meeting in July 2014 at Notman House, to a going public announcement almost seven years later, are all going to be reinvested into helping more Canadian startups navigate the same path,” said John Stokes, partner at Real Ventures. “Their success helps the whole of our startup ecosystem.”
“Much like Amazon did for e-commerce, we’re applying innovation to every facet of hospitality in an end-to-end model,” wrote Davidson, in a blog post announcing the SPAC deal. “Vertically integrated businesses are more arduous to build, but their potential to reinvent the customer experience and its underlying economics is astounding.”
“In 2020, our top 3 direct competitors exited the market, and coming out of the pandemic we believe there’s no better moment than today to aggressively scale our disruptive model,” the CEO added, noting that Sonder adapted amid COVID-19 to provide spaces for those in quarantine and travelling doctors and nurses, which it claims led to 2.8 times more revenue per night than the company’s competitors.
Since the onset of the pandemic, Sonder has also made changes to its model where landlords are now funding “nearly all” of the capital expenditures, which Davidson said has led to “very fast payback periods.” The CEO added that Sonder is also increasingly signing flexible deals, such as revenue shares, where payments are varied to performance, and has plans to transition the majority of its signings to revenue share. “In the long run, we plan to offer franchise contracts and sell our software to other operators,” Davidson said.