Deal Analysis – Priceline’sAcquisition of KayakUSC EMBA San Diego – 2013 Your Logo
Who are these guys? • Founded in 1997 • Founded in 2004 • Online Travel Agent (OTA) • Metasearch engine • “Name Your Own Price” • 133 employees • William Shatner • $224.5M (2011 revenue) • 5,000 employees • 55% from advertising • $4,355.6M (2011 revenue) • 45% from supplier & • Commissions OTA referral fees • Managed inventory • 53% of US metasearch queries
The DealWhat was announced?In the later part 2012, Connecticut based online travel agencyPriceline (NASDAQ:PCLN) announced its largest acquisition since itwent online in 1998. The target is the fast growing Kayak (NASDAQ:KYAK), an online travel search firm that enables consumers to searchfor multiple travel offers from one web or mobile platform. The dealcalls for:• $500 million in cash• $1.3 billion in stock• Adding up to a $1.8 billion dollar valuation of Kayak The deal’s price tag is at least 8 times greater than any of Priceline’s previous acquisitions and is slated to close in mid 2013
What is the Story?It is about Capturing the Consumer!
Online Travel Industry$2 Trillion Industry: 9% of the Worldwide GDP 10% per year growth 77% of travel is for 2nd largest stand-alone business industry in the worldBottom Line – This is a Big Industry A growing middle- class in developing countries $460B = 23% of travel is for leisure
Online Travel Industry Lets talk about the Value Chain • Vacation Packages • Sight seeing • Vacation Home • Local Attractions• Shared values • Friends Rent. • Local Bus tours• Motivation factors • Facebook, • Travel Packages • • Restaurants• Quality of life Airlines • Travel Blogs • Resorts Packages • • Shopping• Personal success Hotel, Car • Photos • Friends • Cruises • Travel reviews• Friends, Movies,• TV, Internet, Ads • Buses, Trains • Emails Dream Research Plan Booking Fulfill Sharing • Restaurants $$ • Advertising $$$ • Sales pitch • Attractions • Google Ad-words $$ • Ticket $$$ during stay • Social Media Ads $$ • Package Deals $$$ • Targeted Ads
Online Travel IndustryThe Conversion Funnel How can Priceline prevent more drops and increaseGoal – Improve conversions? Conversion Rates!
The DealRemember the Value Chain? So who are the players in the value Dream Research Plan Booking Fulfill Sharing chain?
Dream Research Plan Booking Fulfill Sharing• Direct Suppliers are winning online booking share from the OTAs• Metasearch enabled the direct suppliers toSuppliers Direct better reach the consumer and bypass the OTAs Capture the customer Capture more of the• Priceline early Value Chain purchasing Kayak, keeps the direct suppliers encroachment in check Travel Information Websites Mobile Platforms
Strategy What is Priceline getting for $1.8B?• Elimination of a potential competitor• Expanding the role in the Value Chain• Increasing “Look to Book” for Priceline• Potential cost reduction• Strong Platform for Growth• More leverage over direct suppliers
Advanced Better user Advertising Technology experience RevenuesOffer a product buyers want at Customer Loyalty prices they demand Strong Brand Customer experiences Cost Advantages High Conversion Rates Positive Economies of Scale Highly ProfitableFeedback Loops International Strength Negotiating Power with suppliers Strong global growth in online travel Valuable Deep Pockets For Acquisitions Investment Aggregation of Demand Data