Skift Take

With Skyscanner's new funding and ample cash, the company sees itself as an acquirer over the next few months. Skyscanner believes a few modest acquisitions, increased marketing, and continued organic growth should do the trick. There won't be any quick, easy answers as this looks like a strategy for the long haul.

With news that Skyscanner attracted $192 million in venture funding, its first since 2007, Skift has learned from sources that the Priceline Group recently took a hard look at acquiring the Scotland-based flight-metasearch company and walked away.

Skyscanner CFO Shane Corstorphine declined to comment on the report, as did a spokesperson for the Priceline Group.

That the Priceline Group would consider acquiring Skyscanner is not a shocker given the fact that since Expedia went on an acquisition tear in 2014 and 2015, acquiring Wotif, Travelocity, Orbitz Worldwide, and HomeAway, there are a paucity of attractive acquisition targets on the market with perhaps the exception of a pricey TripAdvisor.

It also isn’t difficult to imagine Priceline being ultimately uninterested in Skyscanner given’s sole focus on lodging and the fact that Priceline Group CEO Darren Huston isn’t a huge fan of metasearch. Priceline’s $2.1 billion acquisition of Kayak in 2013 took place before Huston became Group CEO, although he was, and still is, CEO of at the time.

New Strategy

Skyscanner’s new $192 million investment, which saw Goldman Sachs and Numis Securities acting as financial advisors and brokers, represents a change in funding strategy in that before this Skyscanner had only attracted some $6.5 million in funding from Scottish Equity Partners and others through late 2007.

There are a lot of misconceptions about Sequoia Capital’s 2013 investment in Skyscanner. In that transaction, which valued Skyscanner at $800 million, Sequoia Capital didn’t provide Skyscanner with any new cash but bought out other investors.

Skyscanner CFO Shane Corstorphine wouldn’t tell Skift how much of the new $192 million investment, which came at a $1.6 billion valuation, goes toward paying off existing investors, including Scottish Equity Partners and Sequoia Capital, and how much is a cash infusion but he did say that “both are significant sums.”

Corstorphine confirmed that the latest investment is Skyscanner’s first outside investment, in which it issued stock for cash, since the end of 2007.

Skyscanner’s lack of huge venture funding in the past enabled Skyscanner to focus on consumers, instead of merely chasing revenue, Corstorphine says.

“We’re not buying a lot of traffic,” he says, adding that more than 50 percent of Skyscanner’s traffic is direct. Profitable since 2009, with revenue of $135 million in 2014, Corstorphine says Skyscanner has been building the business in a sustainable way.

Regarding the size of Skyscanner’s business, by comparison an independent Kayak generated $292.7 million in revenue in 2012 — more than twice what Skyscanner did in 2014. That was the last time Kayak reported full-year revenue, a metric that is believed to have become much larger in 2015.

Skyscanner Needs To Energize Growth

With a presence in some 40 markets, this new Skyscanner funding by five investors is “well-timed” and accelerates the company’s strategy, Corstorphine says.

Corstorphine says Skyscanner, which has more than 700 employees in 10 global offices, will continue to invest in people and will be open to making acquisitions. Among those new hires will be employees to expand Skyscanner’s new facilitated bookings, which enable consumers to book flights on Skyscanner instead of on partner sites, although the airline or online travel agency is the merchant of record.

“We are focusing hard on that,” Corstorphine says, referring to bookings on Skyscanner. “That is one of the areas where we are investing in people to build that out.”

On the acquisition front, In 2014 Skyscanner acquired Chinese search startup Youbibi and app developer Distinction.

Among other moves, in 2015 Skyscanner launched Skyscanner Japan with joint venture partner Yahoo Japan, which became an investor in this latest funding round.

Asked why existing investors Scottish Equity Partners and Sequoia Capital did not participate in the latest funding round, Corstorphine said Sequoia’s 2013 transaction with Skyscanner had been among its largest to date and the venture capital firm didn’t usually go much higher than that.

Skyscanner didn’t disclose which one of the five new investors, which include Khazanah National Berhad, Artemis, Baillie Gifford, Vitruvian Partners and Yahoo Japan, led the round and in fact Corstorphine says the investments were “fairly equal,” adding there was “no standout lead investor.”

The Market Climate

Corstorphine argues that Skyscanner’s latest funding is a keen endorsement of its prospects because concerns about the Chinese economy were among factors that led to a decline in venture capital funding in the fourth quarter of 2015.

Skyscanner has doubled its growth since the Sequoia investment in 2013 and has plenty of cash, Corstorphine says. With all of the uncertainty in the market, there will be merger and acquisition opportunities over the next 18 months as it may be possible for Skyscanner to acquire companies that may have great technology but have been unable to obtain traction with consumers, he says.

As for Skyscanner’s global ambitions, bringing on new investors Khazanah National Berhad, the sovereign wealth fund of Malaysia, and Yahoo Japan are a great fit, Corstorphine says.

Khazanah National Berhad, which is the majority owner of Malaysia Airlines and owns mobile phone operators, is well-versed in the flight sector and mobile, Corstorphine says, and Yahoo Japan decided to invest after “getting under our technology hood” over the last six months.

As it searched for opportunities to move to the next stage of its growth, Skyscanner obviously hasn’t been acquired and, with its new funding and ample cash, the company sees itself as an acquirer over the next few months given all of the uncertainty in the economy. Skyscanner believes a few modest acquisitions, increased marketing and continued organic growth should do the trick.

There won’t be any quick, easy answers as this looks like a strategy for the long haul.

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Tags: kayak, malaysia airlines, priceline, sequoia capital, skyscanner

Photo credit: Skyscanner CFO Shane Corstorphine says uncertainty in the market will produce ample merger and acquisition opportunities over the next 18 months. VisMedia

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