Sonder to go public in $2.2 billion SPAC deal

Sonder has agreed to go public in a $2.2 billion SPAC merger deal. Sonder Inc. Co-Founder & CEO Francis Davidson joins Yahoo Finance Live to discuss.

Video Transcript

ZACK GUZMAN: But Airbnb may have put a spotlight on the short-term rental space here since its public debut back in December. Of course, we've known the company for longer than that, but it's now far from the only player in that space. And it seemed to be far from the only publicly traded player in that space as well. That's because rental company Sonder recently announced a deal to go public via a SPAC merger in a deal that would give it an enterprise value of about $2.2 billion. It also attracted additional capital from Fidelity and funds from BlackRock.

And for more on that, I want to bring on Sonder's co-founder and CEO Francis Davidson joining us once again. Francis, good to see you again, man. Congrats on the deal. And to be fair here, you know, we've talked about Sonder before. You know, not necessarily a direct competitor with Airbnb. You guys list on the platform. But for you in that battle to kind of bring more attention to Sonder in the short-term rental space, why this deal and why now?

FRANCIS DAVIDSON: Yeah, certainly. Well, listen, just first off, Sonder is a tech-enabled hospitality brand. And what that means is that we operate hotels, apartments, spaces that are really beautiful, where the services are accessed through the Sonder mobile app. And that makes it possible to offer premium accommodations with modern service at price points that most can afford.

And, you know, we're on a mission to offer-- broaden our offering from 35 cities we're in to the rest of the world. And the intent has always been to become a public company. And now an opportunity to bolster our balance sheet in a moment where the recovery is upcoming, we thought would be, you know, this was the time to strike.

EMILY MCCORMICK: Francis, this is Emily. What has demand looked like for these rentals over the course of 2020 and now in early 2021?

FRANCIS DAVIDSON: Listen, it was very scary back in February when we saw early data from our operations in Italy showing that the coronavirus had a really large impact on demand. And so we had to respond very rapidly. And one of the things that we did was to focus on use cases that are really unusual for us, like traveling nurses, like people that were relocating or needed more space to social distance.

And that actually got our occupancy rates back up really rapidly, you know, down from the low of 40% that we saw at the height of the pandemic back to 70% as early as the summer of 2020. So we bounced back really rapidly. Our relative performance versus the hospitality market has been really, really strong and robust through the pandemic.

ZACK GUZMAN: Yeah, when you talk about kind of the expansion plans here, where are you seeing the biggest opportunity for growth? Because, you know, 35 markets across eight countries seems like a lot to really focus in on. I mean, is it mostly focusing on your partnerships with hotels to build something out cool there or specific markets that you're really going to be keying in on? What are you seeing?

FRANCIS DAVIDSON: Yeah, absolutely. So listen, we see immense white space in the 35 markets we're in. We have the top 25 markets in North America, including Mexico City, the top three Canadian cities, a lot of Western European capitals, Dubai. So we have really global markets where we can go much deeper into. And so the next 18 months is really going to be focusing on increasing our presence within markets that we know really well. We think that really reduces the risk of our really rapid expansion plans.

And then, you know, in the next handful of years, we really want to put dots on the map all over the world. We're talking about Latin America and APAC. And so, you know, there's two also vectors that we've been pursuing on supply growth. There's apartment developments, which is where the business got started. But equally important now, which is about 50% of our growth is the conversion and modernization of hotels. And so we look at hotels that could benefit from our technology, that could benefit from our design and our operating processes that improve the guest experience while reducing the operating costs. And that's a value proposition that's really resonating with hotel owners across the world.

EMILY MCCORMICK: And Sonder, to that point, just how the business actually works, are you actually owning-- you know, purchasing and owning these spaces that you're then modernizing? Or are you actually taking out leases yourself and then renting these spaces out to your customers?

FRANCIS DAVIDSON: There's a variety of contract structures. And in fact, it's evolved a lot over time. Right now, we actually do both. Some of the properties that we operate are under revenue shared agreements, and others are under lease contracts. And I have to mention that those lease contracts, there's been a lot of innovation in terms of short initial durations with long renewal options at our election. There's reduction of rent in case there's a recession and a variety of downside protections that we've built in over the years.

But increasingly, we're moving towards rev share. It's actually one of our large objectives for the next three to five years, is to get the vast majority of our contracts over to rev share agreements. And in the very long run, we think a franchise model in selling our software directly to other operators is actually the business model that's going to be best for us.

ZACK GUZMAN: Yeah, does it limit maybe some of the upside here, too, though, right? Because if we're talking about Airbnb potentially taking a cut when you're attracting consumers here, are you looking to pour more into kind of the consumer facing piece of Sonder to make sure you can keep all of that for yourself? Because it does seem like, you know, the owners of these Airbnbs and everything else, you know, would start to take a cut. I understand you own them yourself, but what does the upside look like there?

FRANCIS DAVIDSON: Certainly, so the majority of our revenue by the second quarter or third quarter of 2020 is now through our direct channels. So either directly on sonder.com, through the mobile app, et cetera. And, you know, we intend to, of course, keep growing the customer base of folks that are seeking out our Sonder spaces, given their quality and their consistency. I mean, it's really appealing. Customer satisfaction scores are really high. NPS scores are really high, which means that people tend to come back. They tend to tell their friends. And so that's obviously a really important growth factor for us.

But we also have really great partnerships on the demand side with the major OTAs, with now increasingly business travel channels. And so our goal, really, is to connect with a variety of sources of demand and really focus on providing the best possible guest experience and doing so in the most efficient cost structure. This is really our capability as a business, is a really beautiful, great, modern guest experience with a lot of efficiencies that are driven by technology.

EMILY MCCORMICK: All right, Francis Davidson, Sonder co-founder and CEO, thank you so--