Contact: Ben Kolada, Brenon Daly
For a price comparison website, KAYAK.com appears to be settling for a relatively low price in its purchase by online travel giant Priceline.com. At first glance, Priceline’s offer for KAYAK appears respectable. The $40-per-share bid is the highest KAYAK’s shares have seen in its short life on the Nasdaq. Using an enterprise value of $1.65bn, KAYAK is being valued at 5.8 times trailing revenue and about 5.6x full-year 2012 revenue.
But as we look closer, we see that KAYAK is being valued only slightly higher than Priceline’s current trading valuation, and that’s excluding any takeout premium for the acquirer. With an enterprise value of roughly $28bn, Priceline trades at about 5.5x trailing revenue and 5.3x 2012 revenue. (Priceline shares, which have tacked on roughly 15% so far this year, were unchanged on the news of its largest-ever acquisition.)
Valuation – especially for the acquirer – is a key concern in this transaction because unlike most tech deals, Priceline is covering almost three-quarters of the cost of its purchase with equity. Under terms, Priceline will hand over $1.3bn in stock and $500m in cash for KAYAK. As mentioned, paying with paper is relatively rare these days, because cash is king when it comes to M&A. In fact, according to The 451 M&A KnowledgeBase, Priceline’s acquisition of KAYAK is one of only 12 deals done by US public acquirers so far this year where stock has accounted for more than half the total consideration.
Despite faster growth, KAYAK’s valuation is only slightly above Priceline’s
||EV/2012 projected revenue
||2012/2011 revenue growth
Source: The 451 M&A KnowledgeBase, 451 Research estimates. *Calculated as of 11/8/12.
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Contact: Brenon Daly
Talk about a mixed pair of exits. Venture firm General Catalyst Partners is faced with an unusual situation of the sale of one portfolio company almost undoubtedly slashing the valuation of another portfolio company that just filed for an IPO. The trade sale could even derail the offering, although that’s probably not likely.
The specifics: Boston-based General Catalyst (and more specifically, partner Joel Cutler) has backed both ITA Software, a maker of flight search tools, and Kayak.com, an online travel site. In July, ITA agreed to a $700m sale to Google (although the close of the deal has been hung up by concerns over the search giant potentially having too much influence in the flight search market). And then just this week, Kayak.com put in its paperwork to go public. General Catalyst is the single largest owner of Kayak.com, holding about 30% of the equity.
The rub in the two exits comes because Kayak.com relies heavily on ITA for sending business its way. (According to the prospectus, ITA has accounted for 42% of airfare query results so far this year.) Of course, Google would have every reason not to continue to send that search traffic to Kayak.com if the ITA purchase goes through. So for General Catalyst, it would be nice to pocket the proceeds from a $700m sale of ITA, but probably not if it comes at the cost of Kayak.com’s valuation.
-by Thomas Rasmussen
The past year has seen a surge in online travel deals as well as venture funding of travel startups. In fact, we wonder if the industry hasn’t gotten a little too crowded. A number of startups have received funding, including Uptake, which was founded by ex-Yahoo Travel execs. Uptake brings the social aspect to the online travel world by aggregating user-generated reviews from various portals. It fetched $10m in venture funding from Trinity Ventures and Shasta Ventures last week, bringing its total raised to $14m. The company says the funds are to be used for internal expansion and acquisitions. Indeed, the current competitive landscape has presented startups like Uptake as well as established players like Expedia with one choice: grow or risk becoming irrelevant.
Against this backdrop, online travel companies have taken different approaches to M&A. Relative newcomer Kayak.com is one company that recently took a major step to buy growth. Hoping to go public eventually, the company doubled its size overnight by acquiring competitor SideStep Inc for an estimated $180m in December. Meanwhile, fellow startup Farecast worked on the other side of a transaction, opting for a sale to Microsoft in April for an estimated $115m to help Redmond shore up its ailing MSN Travel division. Meanwhile, the giant of the industry, Expedia, has been ratcheting up the M&A pace. Of the 15 acquisitions it has done, 11 were inked in the last 18 months. In a recent filing with the US Securities and Exchange Commission, Expedia said it spent $180m on five acquisitions in the first two quarters alone.
As for Uptake, we expect the small company to consider a few tuck-in acquisitions of smaller rivals to add more voices to its reviews. Potential targets include companies such as TravelMuse and TripSay, which also offer user reviews. However, while Uptake is eyeing targets, we have a feeling it may be a target itself. We suspect the social aggregation aspect of Uptake is very appealing to larger players that are trying to bring the social Web 2.0 experience to online travel. Likely acquirers include Kayak and Microsoft, which both lack a social rating system. Expedia and Yahoo Travel, an outfit Uptake’s founders know well, might also want the technology to improve on their own systems.
Number of known strategic online travel deals
Source: The 451 M&A KnowledgeBase