Short-Term Rental Startup Sonder Agrees to Go Public in $2.2B SPAC Merger

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Sonder — the lodging startup known for turning properties into short-term rental buildings — is going public via a special acquisition company (SPAC), Gores Metropoulos II, that values the newly combined company at $2.2 billion, Sonder announced Friday. 

The San-Francisco-based company was in talks with Gores about going public in early April, after the Gores SPAC raised $450 million in an initial public offering in January, Commercial Observer reported. The proposed combination is expected to close in 2021, according to a press release. 

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“The opportunity for us to put a meaningful quantity of capital on the balance sheet is incredibly valuable while the travel industry recovers,” Francis Davidson, CEO and co-founder of Sonder, told Commercial Observer on why Sonder chose a SPAC, rather than a traditional initial public offering.

The deal includes a $200 million private placement, led by an affiliate of The Gores Group, which sponsored the SPAC along with Metropoulos & Co., Bloomberg first reported. Investors including Fidelity Management & Research Company, along with entities affiliated with Moore Capital Management, Principal Global Investors and Senator Investment Group that will participate, with funds and accounts managed by BlackRock and Atreides Management.

“Our ambition is to become the largest and most-loved hospitality brand in the world,” Davidson said in a recorded investor webcast. 

The startup joins a growing number of real estate firms going public by merging with a SPAC, which have become increasingly popular in recent months and drawn the attention of the Securities and Exchange Commission. Last month, WeWork agreed to merge with SPAC BowX Acquisition Corp. in a deal that would value the coworking giant at $9 billion.

Sonder’s goal is to become “the Amazon of hospitality,” by focusing on providing most services by an app on a guest’s phone, ensuring high-quality rooms and providing exciting, aesthetic design targeted at the youngest generations, millennials and Gen Z, Davidson said in the webcast. By using an app to manage a visitor’s stay, the company “cuts out the inefficiencies” in a hotel stay, and Sonder sees roughly 50 percent cost reduction, said Davidson. 

The company lists short-term rentals on its own website, Airbnb and Expedia Group’s Vrbo, and has expanded to work with hotels. Davidson said Sonder plans to expand into villas and resorts, and move into the Asia market. 

Sonder is focused on expansion after a tough year for the hospitality industry. When the coronavirus pandemic hit, Sonder laid off a third of its staff, and faced lawsuits from two Manhattan landlords for failing to pay rent or for backing out of a lease, Commercial Observer reported. 

Still, the startup was able to reach unicorn status during COVID-19, after it closed on a $210 million funding round in July. Plus, the hotel industry is inching its way to a recovery, with normal occupancy rates in New York City expected to return by 2025, a CBRE report found.

Sonder expects to achieve approximately $4 billion of revenue in 2025, due to real estate supply growth and the world travel market recovery after the pandemic. And Davidson said that Sonder would need to hire hundreds, if not thousands, of employees to hit its rapid growth plan for the coming years. 

“[Last year] was definitely the hardest year I’ve gone through since founding the company,” Davidson told CO. “I think there’s a general sense that people can’t wait to travel … and with the progress that we’re seeing on vaccinations, I think there’s reason to believe that that there’s going to be [a] pretty strong recovery. What’s more important for us is that we’re really well positioned to benefit from the recovery, in that we serve primarily younger travelers, domestic travelers [and] leisure travelers, and those are expected to be categories that come back faster.”

Goldman Sachs advised Sonder on the deal. Morgan Stanley is serving as lead financial advisor to Gores. Deutsche Bank and Citigroup are serving as capital markets advisors to the SPAC, and Gores also worked with Moelis & Company.

UPDATE: This story has been updated to include comments from Sonder CEO Francis Davidson.