MONTREAL — An American company has agreed to buy Montreal-based flexible-workspace provider Breather for US$3 million, The Logic has learned.

In a May 20 letter obtained by The Logic, Breather CEO Bryan Murphy informed shareholders of Breather Products Inc. that the company had agreed to a term sheet with Industrious National Management Company, a New York-based operator of collaborative spaces, offices and enterprise suites.

The US$3-million cash purchase price is a fraction of the US$127.17 million Breather has raised since its founding in 2012, according to PitchBook data, from a cadre of high-profile investors. Menlo Ventures, known for its early-stage stake in Uber, led a US$40-million round in the company in 2016. Other investors include Peter Thiel’s Valar Ventures; New York entrepreneur Gary Vaynerchuk; the Finkelstein 2036 Family Trust, the family entity overseen by Shopify president Harley Finkelstein; Montreal’s Real Ventures; RRE Ventures; Slow Ventures; SOSV and the Caisse de dépôt et placement du Québec, Quebec’s public pension fund manager.

Industrious made the offer in an April 20 letter to Murphy. Few, if any, of Breather’s investors are likely to see money from the sale. Breather’s most recent financing was US$3.1 million in mezzanine debt from TriplePoint Private Venture Credit in May 2020, according to PitchBook data. In most cases, debtholders are paid out before shareholders, so the proceeds from the transaction—which is set to close by May 28—won’t cover the company’s senior class of preferred shares. As a result, “holders of all other classes of preferred shares and common shares in the capital of the Corporation will receive no consideration.” Shareholders have until May 27 to sign the letter. Even if its investors balk at the deal, however, Breather can use its power of attorney to force it through.

Reached by telephone Wednesday, Industrious CEO Jamie Hodari declined to comment on the deal. Murphy didn’t respond to a request for comment, nor did Finkelstein or Real Ventures partner John Stokes. “We don’t comment on transaction rumours,” Caisse de dépôt spokesperson Kate Monfette said.

The sale would mark the final gasp of the company, which was the product of a “crazy idea” from founder Julien Smith. Frenetic, heavily tattooed and TED Talk-savvy, the Montreal-raised Smith and business partner Caterina Rizzi hit upon the idea of renting fully furnished spaces to the officeless masses after finding themselves sick of working out of Starbucks coffee shops. Breather leases its space from companies and building operators.

Smith once bragged that the company could break even at occupancy rates below 50 per cent. Silicon Valley was willing to bet he was right.

Yet the company was suffering even before the COVID-19 pandemic decimated the office real estate market. It hired CEO Murphy in January 2019, four months after Smith left. Murphy, a former eBay vice-president, said Breather’s fortunes rested in its ability to further expansion. Profligate spending characterized Murphy’s early reign, with the CEO acknowledging that the company had spent nearly all of its US$122 million in publicly disclosed venture funding. After WeWork’s first attempt at an IPO was called off in the summer of 2019 over investor concerns, Breather reportedly struggled to raise more money; according to The Globe and Mail, it raised another roughly US$40 million, but only from existing investors, and at a decreased post-money valuation of US$100 million. It laid off about 17 per cent of its staff in December 2019. 

In March 2020, the pandemic hit, and occupancy levels in workshare spaces crashed. In April, Breather received a US$1.4-million loan under the U.S. Paycheck Protection Program, saying it would apply the money to payroll costs for 211 employees. It also received an undisclosed amount under the Canada Emergency Wage Subsidy program. That December, the company began insolvency proceedings in the U.K. and U.S., which saw its subsidiaries in those countries assigned to third parties that would unload their more than 350 leases, in a bid to pay off creditors. At the time, Murphy told The Globe it would also try to divest itself of its remaining 79 Canadian leases and try to transform itself into a pure tech play: a platform through which landlords could rent out flexible workspaces. After furloughing some 120 staff, the company planned to reduce its workforce to 30. It currently has 55 employees, according to LinkedIn. The sale to Industrious includes a clause extending offers of employment to existing Breather employees. 

The Globe reported last December that Breather had hired an investment bank, Moelis & Co., to explore a financing or sale, but that buyers were dissuaded by the leases it held. Murphy said at the time he was nonetheless optimistic about the company’s future. 

Founded in 2013, Industrious operates workspaces in more than 50 U.S. markets. In February, CBRE, the world’s largest commercial real estate-services firm, took a 35 per cent stake in the company for US$200 million, becoming its largest shareholder, with a plan to buy a further five per cent. Bloomberg reported the deal valued Industrious at over US$600 million. Hodari told Bloomberg at the time the CBRE deal validated his firm’s reliance on management agreements for its properties rather than signing leases.

“It’s partly why we’ve been able to spend the last year planting while others were pruning,” he said.

With files from Murad Hemmadi in Ottawa