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In a quiet morning overall in terms of market moving news, a major deal has been struck in the hotel industry as Marriott (MAR) and Sonder (SOND) have entered into a licensing agreement whereby SOND's portfolio of properties will be added to the MAR system. SOND, which had a market cap of just $29 mln as of last Friday and has struggled mightily since going public via a SPAC in January 2022, also announced that it has secured $146 mln in new financing. This combination of news has shares of SOND rocketing higher as its revenue growth prospects and balance sheet health have both brightened considerably.

• SOND is unique in the hospitality industry in that it owns and operates apartment-style properties that are primarily located in urban settings. The company's 10,500 rooms -- 9,000 of which will be added to MAR's portfolio this year -- will help expand MAR's reach into the longer-term accommodation market. Furthermore, the addition of SOND's portfolio enabled MAR to bump its FY24 net rooms growth guidance to 6.0-6.5% from its prior outlook of 5.5-6.0%.
• MAR will also receive a royalty fee based on a percentage of SOND gross room revenue. In a win-win scenario for both companies, SOND's properties will be made available throughout MAR's extensive distribution channels, and they will also be included in MAR's loyalty program.
• For SOND, the financial implications of this agreement are potentially massive. The company, which has never been profitable and has dealt with accounting issues causing it to delay the filing of its financials, expects the agreement with MAR to drive a substantial uplift in revenue and RevPAR over time. For some context, SOND generated $439 mln in total revenue for the nine months ended September 30, 2023, and had an operating loss of $(183.7) mln for this period. Its Rev PAR for 3Q23 -- its most recent available earnings report -- was $153.
• The company has also significantly shored up its balance sheet by improving its liquidity by $146 mln through the issuance of new convertible preferred equity, and from the monetization of existing security deposits with current noteholders. With this funding in hand, SOND will be able to finance the initial integration costs of the MAR agreement. Over time, though, SOND expects to realize substantial cost savings as improved distribution channel mix and preferred distribution channel rates drive customer acquisition costs lower.

 The main takeaway is that this licensing agreement looks like a win-win for both companies, but it has the potential to be a real game-changer for the struggling SOND as it benefits from MAR's extensive marketing and distribution capabilities.