Sabre Quietly Looks to Shed Hotel Software Unit

Sabre has shopped its hospitality division to prospective buyers this year, according to sources. The public company based in Southlake, Texas, has a business unit selling software that helps hotels take reservations online, manage properties, and other tasks. The division is smaller than the technology company’s flagship businesses in airfare distribution and airline operational software.

“We do not comment on market rumors or speculation,” said a Sabre spokesperson.

Skift’s two sources are external to Sabre but said they had direct knowledge of the pitch to buyers. Skift could not determine which companies took a look at Sabre’s pitch.

A source within Sabre said the company had this year had internal conversations about a possible divesture, and six other industry professionals anonymously shared rumors of a Sabre asset sale with Skift since June. Skift couldn’t confirm the names of the investment banks said to be trying to arrange a transaction.

Surprise Move

The apparent willingness of Sabre to exit the hospitality software business is surprising. Sabre has pushed back on divesture talk to reporters and some investors this year.

Sabre has also recently increased, rather than cut, spending on its hospitality division this year — which isn’t the standard playbook in preparing an asset for sale.

Losses in its hospitality unit worsened in absolute dollars during the first half of this year compared to the last half of 2022. “Transaction-related costs” rose, and additional investment in efforts such as cloud migration and the debut of a “retail studio,” which aims to help hoteliers sell non-room products and services, also added to costs. Earlier this year, Sabre bought Nuvola, a provider of tools to help hotels with managing tasks and engaging with guests online.

Seeking Profitability

Despite a revenue rebound, Sabre’s hospitality division hasn’t returned to profitability as the pandemic has receded. In the year through June 30, the division generated about $232 million in revenue, but it suffered a net loss of $21.7 million in earnings before interest, taxes, depreciation, and amortization.

The lack of profitability impedes a sale by private equity or other growth investors during a time of market turmoil. The most likely buyer would be a “strategic” one, or a company looking to plug a gap in its portfolio or a hole in its customer base by geography or segment. A strategic buyer would have to believe that Sabre’s solutions could regain profitability quickly if it synced with a broader suite of services and a supporting sales machine.

Sabre’s for hospitality unit’s flagship product is a central reservation system that helps hotels manage bookings. It also offers a booking engine that enables hotel websites and apps to accept reservations, and a property management system that’s mainly for limited-service hotels. While hotels worldwide use Sabre’s software, ones in the U.S. and Europe make up much of the customer base.

Critical to any buyer’s assessment of the hospitality unit would be the stability of the unit’s customer base. Sabre Hospitality’s largest client is Wyndham Hotel & Resorts, many of whose franchisees run Sabre SynXis Property Hub. Assurance that Wyndham is happy with the services would be a key criterion for a deal, one analyst said.

Who Might Benefit

For Sabre, an asset sale might give its hospitality unit a stable home to grow while enabling it to focus on its core business of serving airlines.

A sale would also strengthen the company’s balance sheet by helping to pay down debt. As of June 30, Sabre had $3.8 billion in net debt. It had generated $2.18 billion in revenue in the previous 12 months. It had a net loss of $360 million in earnings before interest, taxes, depreciation, and amortization in the year to June 30.

Uncertain Valuation

It’s unclear what kind of multiple Sabre might accept above the annualized revenue generated by the division. Before the pandemic, Sabre’s stock was trading at roughly twice today’s price, and its hospitality division was profitable. Back then, a valuation of nearly $1 billion for the hospitality division would have been possible, according to one venture capitalist.

But Sabre’s stock price has been hit by an investor flight from technology companies as interest rates rise.

Sabre’s flagship businesses in distribution and airline software services depend on a rebound in corporate travel to something close to 85 percent of 2019 levels if they’re to become cash-positive, according to the models of some institutional investors and investment bank research analysts. Sabre’s overall recovery depends on the trajectory of corporate travel.

“It’s not a heroic assumption that Sabre gets there,” said one professional investor, speaking off the record about the company’s trajectory to returning to generating free cash flow while maintaining a leaner operational structure. “I feel constructive about Sabre’s core businesses.”

Last year, Sabre sold its AirCentre unit, which provided tools for airline crew management, for $392 million. The unit had generated approximately a $55 million operating profit on $150 million in revenue in the pre-pandemic year of 2019, suggesting a deal multiple of roughly three times AirCentre’s enterprise value, conservatively estimated.

In light of that sale, a conservative valuation for the hospitality unit might be around $700 million, or about three times its rolling 12-month revenues of $230 million. That would account for only about 12 percent of Sabre’s overall enterprise value. Sabre has a current market capitalization of about $1.66 billion in equity. Add to that total debt and cash of about $4.7 billion, and the company has an approximate enterprise value of $5.4 billion.

“Investors might welcome the sale of the hospitality unit, but a sale wouldn’t be the story of the year,” said the long-term institutional investor.

Potential Buyers

For the hotel technology sector, however, the sale could be significant. A change of hands for Sabre’s technology could shift the balance of power among other players by fortifying the sales momentum of another startup or public company.

Oracle, which has a hospitality software business and cash on hand, has been named by industry observers speculating on potential buyers. (For more context on why Oracle may be the best-positioned buyer, see Skift’s earlier article.)

Less likely, Accel-KKR, an investor that majority owns Cendyn — a specialist in customer relationship management for hotels that also offers a central reservation system called Pegasus — might see a chance for a hotel tech roll-up. The private equity firm typically targets mid-market players in fragmented sectors with large addressable customer bases. In hotel tech, scale wins favor from hotel management companies, which run multiple properties, sometimes as franchisees.

A “scale-up” play could fit a niche in the mid-market, given that Amadeus primarily courts the top of the market after its recent wins with IHG and Marriott.

Yet market turmoil and Sabre Hospitality’s lack of profitability probably rule out interest from other recent investors in travel technology, such as Softbank (parent company of Yanolja), Thoma Bravo (which created Travelclick and sold it to Amadeus), and TCV.

Sabre faces an uncertain market for selling an asset. With or without a successful sale, it will have to reveal the cost of hiring outside help for an attempted divesture on its financial statements eventually. Investors will hope the money is well spent.