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When Bryan Murphy succeeded Julien Smith in early 2019, Breather had 16,000 clients.

Sarah Blesener/Breather

Breather Products Inc., a Montreal startup that raised more than US$150-million to build a global flexible workspace operator, is selling most of its assets for US$3-million to Industrious National Management Co., a co-working company backed by real estate giant CBRE.

Industrious chief executive officer Jamie Hodari confirmed the acquisition, first reported by The Logic, will close this week. “We are purchasing the Breather assets and we are very excited about it,” he said. “We think it’s a great brand ... and we want to be good stewards about what we are buying.”

Mr. Hodari would not confirm the price, although two sources familiar with the deal said it is valued at US$3-million. The Globe and Mail is not identifying the sources because they are not authorized to speak about the matter.

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The deal follows a run of bad luck for Breather over the past two years brought on by external forces. Breather was once one of Canada’s startup darlings and drew investment from top Silicon Valley investors such as Menlo Ventures and Peter Thiel’s Valar Ventures, the Caisse de dépôt et placement du Québec and Real Ventures of Canada, and Singapore sovereign wealth fund Temasek.

Breather was founded in 2012 by self-styled trend spotter and business book author Julien Smith and designer Caterina Rizzi. Their idea was to rent offices by the hour online to clients such as an Airbnb for boardrooms. But unlike Airbnb, Breather leased the spaces it rented out, requiring capital. By signing long-term leases, they figured Breather could profit by renting the spaces at higher rates for shorter periods.

By early 2019, when Bryan Murphy, a former eBay executive, succeeded Mr. Smith, Breather had 16,000 clients, including Apple, Google and Royal Bank of Canada, and 500 spaces in New York, San Francisco, London, Toronto and six more cities. Revenue surpassed US$35-million in 2019.

Then, in August, 2019, the parent of co-working giant WeWork filed to go public. Investors balked at its business model, governance and losses. The company slashed its valuation, pulled its IPO, laid off thousands and ousted its CEO. That debacle dried up investor interest in flexible office providers just as Breather sought new funding.

Breather did raise between US$35-million and US$40-million, but only past investors ponied up, devaluing Breather to about US$100-million after the funding. It laid off 17 per cent of staff in late 2019 in a sweeping cost-cutting effort.

But Breather was set to soar in 2020: Its new spaces were 95-per-cent sold out for extended rentals, the company was expanding and revenue was rising. Mr. Murphy figured the company would be profitable by year-end.

Then the pandemic hit. Demand for short-term rentals, accounting for half of Breather’s business, vanished and occupancy dropped to 25 per cent by last fall. Breather tried to delay or renegotiate lease payments, but several landlords sued its U.S. subsidiary for non-payment in obligations. Other flexible workspace providers were hit just as hard. Mr. Murphy told The Globe last fall that leasing its own spaces “doesn’t make sense and, to be frank, I’m not sure it ever made sense.”

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Breather briefly hired investment bank Moelis & Co. to pursue a financing or sale, but buyers balked at its lease commitments. Breather last fall abandoned hundreds of leases as its subsidiaries in the United States and Britain filed for insolvency to wind up operations and repay creditors in those markets. After furloughing most of its 120 employees early in the pandemic, it made those cuts permanent. Meanwhile, Mr. Murphy directed engineering and product teams to expand its platform to handle third-party listings. The hope was to rapidly sign up landlords to use the platform and revive the business.

But by then, Breather’s owners were ready to sell and cut their losses. They realized it would be too complicated to bring in another private financier and restructure the equity ownership, and knew they were unlikely to ever make the kinds of returns from the investment they’d once envisaged. Breather fielded three bids, each at a fraction of its one-time peak value.

Industrious is getting Breather’s brand name, technology and roughly 10 to 15 engineers. Most investors will be totally wiped out as the proceeds are used to repay remaining obligations.

Mr. Hodari said Industrious hasn’t yet decided whether to keep bringing on third-party listings or just use Breather to promote and rent its own 150-odd locations in dozens of U.S. cities, “but I suspect we will go out to many of the spaces currently listed on Breather and ask if they’d like to relist on whatever we’re building.”

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