Marriott makes license deal with Sonder

SAN FRANCISCO  – Apartment-style accommodation company Sonder Holdings Inc. has entered into a long-term strategic licensing agreement with Marriott International with more than 9,000 live units joining the Marriott portfolio by the end of 2024 under the Sonder by Marriott Bonvoy brand. Another 1,500 Sonder units are anticipated to join at later dates.

With the deal, Marriott now expects full year 2024 net rooms growth of 6% to 6.5%. Under the agreement, Marriott will receive a royalty fee based on a percentage of Sonder gross room revenues.

At the same time, NASDAQ-listed Sonder announced that it has enhanced its liquidity profile by approximately $146 million to support its long-term profitable growth and the integration efforts under the strategic agreement with Marriott. Sonder is expected to have access to these additional funds over the coming months.

With Sonder’s market capitalization dropping to $29 million at the close of trading Friday (it peaked at $2.3 billion in February 2022), the deals provides both short-term liquidity support and the potential to reaccelerate growth. Sonder stock was up approximately 20% in pre-market activity on Monday after the announcement was made.

Sonder, founded in 2014 and today with approximately 200 properties worldwide, anticipates that full integration with Marriott’s digital channels and platform will occur in 2025; however, Sonder expects that Marriott.com will include link-offs to Sonder’s digital platforms to support shop, book, earn and redeem by Marriott Bonvoy members and customers before the end of 2024. Sonder expects the strategic agreement to deliver significant revenue opportunities, uplift RevPAR over time and create operating efficiencies.

The company has undergone a number of job cuts and restructuring since its public market listing in early 2022. In the middle of 2022, Sonder lost 22% of its workforce as part of a restructuring. Earlier this year, it shaved 17% of the workforce in an effort to save $11 million.

Sonder also believes that the strategic agreement with Marriott will enhance its value proposition to real estate owners who can expect to realize the unique combination of Sonder’s product and Marriott’s distribution. Appealing to key demographics, including younger travelers, these assets leverage a digital-first operating model and cater to longer stays.

Equity deal for Sonder

With Sonders equity deal, a consortium of investors has committed to purchase approximately $43 million of a newly designated series of convertible preferred equity of Sonder.

Sonder’s existing noteholders have provided approximately $83 million in additional liquidity, including $4 million in financing funded on August 13, 2024, and approximately $79 million in the form of a 30-month extension (through the end of 2026) of the paid-in-kind feature of the Note Purchase Agreement (21 months of which is at Sonder’s option). There are also other sources of liquidity totaling $20 million.

The above is in addition to the previously announced $16 million in financing from Sonder’s existing noteholders.

The investor consortium and Sonder’s existing noteholders purchased an aggregate of approximately $14.7 million of Preferred Equity on or about August 13, 2024, and have committed to purchase an additional approximately $28.6 million of Preferred Equity, subject to Sonder becoming current on its overdue U.S. Securities and Exchange Commission reports and satisfaction of customary closing conditions, which is expected to occur in the fourth quarter of 2024.

Holders of over 50% of Sonder’s outstanding shares of common stock have agreed to vote their shares in favor of certain proposals related to this transaction at a meeting of Sonder’s shareholders, which is expected to be scheduled later this year.

Janice Sears, lead independent director of the Sonder Board of Directors, said, “Today’s announcement is the result of deliberate and thoughtful planning by the Board and the management team to best position Sonder to deliver value for all stakeholders. Sonder has been relentlessly focused on operational efficiency to deliver long-term profitability and these actions are the next step in achieving that goal. With significantly improved financial flexibility from the support of our lenders and investors, Sonder now has a stronger balance sheet to fuel its value creation strategy as it embarks on its next chapter, including the strategic licensing agreement with Marriott.”