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One of the most successful startups to launch in Canada in the past decade, travel accommodations provider Sonder Holdings Inc., laid out aggressive growth plans Friday as it announced it will go public on Nasdaq.

Sonder, which was founded by Canadian Francis Davidson during his freshman year at Montreal’s McGill University in 2012 and moved to San Francisco in 2016, said it will merge with Gores Metropoulos II, Inc. The deal gives it US$650-million of cash held by the special purpose acquisition company, an enterprise value of US$2.2-billion and equity valued at US$2.9-billion.

Existing Sonder investors, including Canada’s Inovia Capital Growth Fund I, will retain 74-per-cent ownership.

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The deal, which has yet to be approved by GM II shareholders, is expected to close in the second half of this year. It has been unanimously approved by boards of Sonder and GM II.

“I’ve wanted to build an iconic 21st-century brand … and this is a necessary pit stop along that journey,” the 28-year-old chief executive said in an interview. “While the industry is on its back, we opted to charge forward,” by going public.

Sonder has emerged as both a partner and rival to giant Airbnb, Inc. , which went public in December. Rather than provide a platform for homeowners to rent properties to travellers as Airbnb does, Sonder leases spaces from real estate companies, giving it more control over rooms and furnishings. It targeted digitally savvy millennials seeking “authentic” experiences instead of generic hotels or the uneven quality of Airbnb rentals, though it does list on Airbnb.

Forgoing costly amenities such as room service, front desks and gyms, Sonder provides keyless entry to rooms appointed as in hip boutique hotels, scattered in buildings in cosmopolitan neighbourhoods in 35 cities in eight countries. Sonder offers digital concierge services to guests through their phones, connecting them to local services such as food delivery. Operating costs are 50 per cent lower than traditional hotels.

Mr. Davidson, who originally started out by renting his Montreal apartment to travellers between school years, left Canada to build Sonder because he lacked experience. “The most important thing for me was to surround myself with people who had done it before, that had taken a company public, built a global brand rapidly and had raised hundreds of millions of dollars,” he said.

Sonder figured out its unit economics by 2018, stepped up expansion efforts and attracted rivals. Then the pandemic hit. It slashed costs, cut rates by 45 per cent and marketed its properties as temporary shelters for health care workers, displaced students and stranded travellers. That helped it reach nearly 50-per-cent occupancy, better than accommodation providers.

Its three biggest startup rivals, Stay Alfred and Airbnb-based Lyric Hospitality and Oyo Homes and Hospitality left the business. Meanwhile, Sonder raised US$170-million in venture capital last spring. The company saw revenue in 2020 dip to US$116-million from $143-million in 2019, a better performance than the accommodations industry as a whole, while daily revenue per available room fell to US$81 from US$143.

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“Because of their resilience and grit and fast action, they were able to not only weather the pandemic but position themselves to come out of the crisis as a leading entity” as travel rebounds, said Inovia general partner Chris Arsenault.

Now, after ending 2020 with 12,000 rooms under contract – 1,000 fewer than a year earlier – and 5,000 of them in use, Sonder is betting heavily on a solid and sustained rebound for the travel business after the pandemic.

“We decided this was potentially one of the best moments in the history of hospitality to really lean in and deploy our revolutionizing model,” Mr. Davidson said.

Sonder plans to expand briskly, reaching 77,000 units “live” by the end of 2025 and 25,000 more under contract for future use. It is also forecasting revenue to reach US$4-billion in 2025, up from a projected US$173-million this year, and for daily revenue per room to fully recover and surpass prepandemic levels by 2023.

The company will initially focus on adding rooms in existing markets such as London, New York and Mexico City; it plans to expand to Asia, add resort rentals and franchise its software to other operators.

Meanwhile, Sonder is signing up landlords to cover 90 per cent of capital expenditures and has entered into revenue-sharing agreements with many. Its deals with landlords eager to fill buildings at favourable rates means Sonder’s payback period on rooms is three months. Sonder projects adjusted operating earnings will rise from a US$200-million loss in 2020 to a US$822-million gain in 2025.

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