On November 8, 2012, Priceline Group announced it would buy travel metasearch firm Kayak for $40 a share, or $1.8 billion, in a mix of cash ($500 million) and Priceline stock ($1.3 billion). The purchase price represents a premium of almost 27% from Kayak’s November 7, 2012 closing stock price ($31.54).
With this acquisition, Priceline expands the size of its ranch on the travel eCommerce and distribution prairie. With nearly $4.7 billion in cash and short-term investments (including $7.2 million in restricted cash), Priceline can well afford to buy Kayak. But what is Priceline getting for its $1.8 billion?
- A sterling brand. To both win more consumer awareness and burnish itself up for its recent IPO, Kayak has spent the past several years building up its brand through paid, earned, and social media. The result is that Kayak has clearly emerged as the category-defining name within the metasearch space.
- An outstanding, multinational, multi-platform digital travel planning experience. Kayak’s tech team, led by Kayak’s CTO Paul English, has maintained a laser-like focus on infusing Kayak’s pages with numerous useful tools to help the traveler. Kayak is a pioneer in “rich Internet applications,” the fancy term used to describe the buttons and sliders we use to dynamically refine Kayak’s search results. Mr. English’s team has also ensured that Kayak’s pages download at the web equivalent of supersonic speed — often in a second or less. Kayak operates in 18 countries, and has a solid presence in various mobile platforms — a channel that, according to Kayak’s Q3 2012 earnings release, has grown by 87% from Q3 2011.
- A presence further up the travel search and planning food chain. With Kayak, Priceline advances into the “dreaming” and “learning” phases of travel planning process, complementing its existing brands’ positions in the “plan“ and “book” areas. This will allow Priceline to be an even larger market-maker. The hundreds of millions of queries Kayak processes each year is priceless data that Priceline can use to improve its marketing, product development, and more.
- A tougher environment for Priceline’s competitors. Priceline’s acquisition of Kayak isn’t good news for Expedia, Orbitz, and Travelocity, Priceline’s chief competitors. It’s unlikely that Priceline will interfere with Kayak’s supplier relationships, but Atmosphere won’t be surprised if Priceline takes steps to make life more difficult or expensive for other online travel companies to participate in Kayak.
- Richer, better travel search. Kayak can marry its search capabilities with Priceline’s real-time access to inventory and pricing. Together, Priceline and Kayak may also be able to develop solutions that will allow them to reduce or eliminate their reliance on ITA Software, now owned by Google.
- A slew of highly talented developers. Tried to hire software engineers or developers lately? If you remember nothing else about this deal, remember this: More than anything else, this was a talent landgrab by Priceline. In its S-1, Kayak stated that it 87 of its then 140 employees were software engineers or developers. With headcount now around 180, no doubt Kayak’s tech team has grown in size — and, no doubt, skills and creativity — skills and creativity that Priceline will soon be able to use to help it improve its user experience.
The timing of this deal shouldn’t be overlooked, either. It’s nothing short of brilliant. The news was announced two days after the US Presidential election, making it less likely to be overlooked in the immediate wake of the election results and analysis. But it’s also brilliant in that it comes just a few days before the travel tech industry’s version of the high school prom known as the PhoCusWright conference, which takes place November 13-15, 2012. Kayak’s CEO, Steve Hafner, a colorful fixture at the PhoCusWright conferences over the years, just made sure he’d be the center of attention by the swarms of other travel tech executives, venture capitalists, and others attending the event (suggestion to attendees: Let Steve buy the drinks).
What do you think about this deal? In the inevitable “domino effect” of travel tech deal making, what do you think comes next? Please share your thoughts below.
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