Once the darling of Canadian startups, flexible workspace provider Breather sells most assets for $ 3 million
Breather Products Inc., a Montreal-based startup that has raised more than US $ 150 million to build a global operator of flexible workspaces, is selling most of its assets for US $ 3 million to Industrious National Management Co., a coworking company backed by real estate giant CBRE.
The CEO of the industrialist, Jamie Hodari, has confirmed that the acquisition, first reported by The Logic, will be finalized this week. “We are buying the assets of Breather and we are very excited about it,” he said. “We think it’s a great brand … and we want to be good stewards of what we buy.”
Mr Hodari did not confirm the price, although two sources close to the deal said it was valued at $ 3 million. The Globe and Mail does not identify the sources as they are not authorized to speak about the matter.
The deal follows a string of bad luck for Breather over the past two years brought on by outside forces. Breather was once a darling of Canadian startups and attracted investment from major Silicon Valley investors such as Peter Thiel’s Menlo Ventures and Valar Ventures, the Caisse de dépôt et placement du Québec and Real Ventures of Canada, and the Singapore sovereign wealth fund Temasek.
Breather was founded in 2012 by Julien Smith, a self-proclaimed trend researcher and business book author, and designer Caterina Rizzi. Their idea was to rent offices by the hour online to clients such as an Airbnb for meeting rooms. But unlike Airbnb, Breather leased the spaces he leased, requiring capital. By signing long-term leases, they figured that Breather could benefit from leasing the spaces at higher rates for shorter periods.
In early 2019, when Bryan Murphy, a former eBay executive, took over from Mr. Smith, Breather had 16,000 clients, including Apple, Google and Royal Bank of Canada, and 500 locations in New York, San Francisco, London, Toronto. and six other cities. . Revenue exceeded US $ 35 million in 2019.
Then, in August 2019, the parent company of coworking giant WeWork filed for an IPO. Investors balked at its business model, governance and losses. The company downgraded its valuation, pulled its IPO, laid off thousands of people and ousted its CEO. This debacle dried up investor interest in flexible office providers as Breather sought new funding.
Breather raised between $ 35 million and $ 40 million, but only the former investors raised the funds, devaluing Breather to around $ 100 million after the funding. This laid off 17 percent staff at the end of 2019 in a vast effort to reduce costs.
But Breather was set to skyrocket in 2020: its new spaces were 95% sold for extended rentals, the company was expanding, and revenues were increasing. Mr. Murphy believed the business would be profitable by the end of the year.
Then the pandemic struck. Demand for short-term rentals, accounting for half of Breather’s business, has vanished and occupancy has dropped to 25% last fall. Breather tried to delay or renegotiate the lease payments, but several landlords sued her U.S. subsidiary for non-payment of obligations. Other flexible workspace providers have been hit just as hard. Mr Murphy told The Globe last fall that renting his own space “doesn’t make sense and, to be frank, I’m not sure it ever made sense.”
Breather briefly hired investment bank Moelis & Co. to pursue a finance or sale, but the buyers waived her lease commitments. Last fall, Breather abandoned hundreds of leases as its subsidiaries in the United States and Britain filed for insolvency to shut down operations and pay off creditors in those markets. After putting most of its 120 employees on leave at the start of the pandemic, it has made those cuts permanent. During this time, Mr. Murphy led the engineering and product teams to extend his platform to manage third-party lists. The hope was to quickly recruit owners to use the platform and revive the business.
But by then, Breather’s owners were ready to sell and cut their losses. They realized that it would be too complicated to bring in another private financier and restructure the shareholding, and knew they were unlikely to achieve the kind of returns on investment they had previously envisioned. . Breather submitted three offers, each at a fraction of its single maximum value.
Industrious gets the brand, the technology, and about 10-15 engineers from Breather. Most investors will be totally wiped out as the proceeds will be used to pay off the remaining bonds.
Mr Hodari said Industrious has yet to decide whether to continue offering third-party listings or just use Breather to promote and rent its own some 150 locations in dozens of US cities, “but I suspect that we’ll go to many of the spaces currently listed on Breather and ask if they would like to re-register on anything we’re building.
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