Skift Take

The long-predicted buyout of public-company Travelport has happened at a premium of about twice the market capitalization of the company. Expect a spinout of the company's eNett payments division and the proverbial "cost restructuring."

Travelport is being taken private in an all-cash transaction valued at approximately $4.4 billion that follows a process that began at the start of the year by New York activist investor Elliott Management.

The third-largest e-commerce platform for the distribution of air, hotel, and other travel content is being acquired by affiliates of Siris Capital Group, and Evergreen Coast Capital, which is the private equity affiliate of Elliott.

Travelport’s market capitalization prior to the deal was about $1.9 billion.

The Langley, U.K.-based company had revenues of $2.45 billion in 2017, and earnings before interest, tax, depreciation, and amortization of $467 million in 2017. It has roughly $2 billion in debt.

It’s not the first time private equity has taken an interest in Travelport. Blackstone bought Travelport for $4.3 billion in 2006 and took it public in 2014. Blackstone’s purchase price was slightly less than today’s $4.4 billion proposed price. Adjusting for inflation, that is not a strong gain.

Travelport’s advocates might say that to compare the Siris deal with Blackstone is comparing an apple with a pear. What Blackstone bought for $4.3 billion when it acquired Travelport from Cendant in 2006 was the Galileo International global distribution business, the online travel agency Orbitz, and the ground product operator, GTA, along with some other smaller businesses which Cendant had acquired in the travel distribution sector.

Subsequent to that transaction, Blackstone in 2007 bought Worldspan, which had already lost the Expedia air business and then sold the Orbitz business by taking it public and then progressively divesting its shares. It sold the GTA business to Kuoni, and disposed of several other smaller businesses.

Hence, to compare what Blackstone paid $4.3 billion for in 2006 with what Siris and Evergreen are paying $4.4 billion for in 2018 and concluding that this is not a strong gain could be rather misleading.

In any event, the companies said they expect the new deal to close in the second quarter of 2019. Other companies can make counter offers.

The acquisition, announced Monday morning, marks the end of an eight-month-long effort by Elliott to clinch a deal for Travelport. The effort is being led by Jesse Cohn.

The New York-based fund disclosed a 12 percent stake in the company in March and pushed it to explore a sale.

In a statement, Gordon Wilson, president and CEO of Travelport, said: “It is very much business as usual at Travelport.”

What Now?

Trimming costs is goal one. In a release, the company said it would take “steps to restructure and optimize the efficiency of its cost base.”

Elliott is run by Paul Singer, a well-known activist investor who is more often than not a huge thorn in the side of company management teams. When Elliott revealed in a regulatory filing that it had taken a 12 percent stake in Travelport, it said it would ask Travelport’s management and board of directors to consider various options, such as unlocking the value of its payments unit eNett.

Elliott said in the filing then that Travelport “possesses a fast-growing and strategic business in the travel payments industry.” That language suggested an interest in potentially spinning out eNett, Travelport’s payments unit, which it acquired several years ago.

Travelport has a majority stake in eNett. Optal, formerly known as PSP International, is a minority shareholder.

Elliott’s logic may be that Travelport’s market valuation doesn’t fully reflect eNett’s value. The payments unit accounts for about 10 percent of Travelport’s revenues, according to research by investment management firm Bernstein. The unit had 29 percent revenue growth in 2017, to about $200 million. The division has forecast it will achieve “at least 30 percent” growth this year.

The resulting price premium over its market capitalization netted the hedge fund a significant gain on the shares it had taken.

So what now for Elliott? Preparing the company for an onward sale to another owner is a possibility.

Travelport is one of the three biggest travel distribution technology companies, along with larger rivals Amadeus and Sabre. Those other two companies are unlikely to acquire it due to the optics of perceived antitrust issues. Travelsky, China’s state-backed global distribution system, would be an intriguing match but not highly probable.

Evercore ISI estimated Travelport’s technology investment costs would grow in the near-term at “about 4 percent to 5 percent” a year. That’s neck-and-neck with Travelport’s 5 percent compound annualized growth during the past two years and 4 percent annualized over the past five years.

As backstory, private equity group Blackstone bought Travelport for $4.3 billion in 2006.

Blackstone loaded up the company with debt. Then it had to accept a restructuring of the company’s debt by creditors, which meant it gave up some control. Its attempt at launching Travelport back on the public market in 2010 fizzled, but an attempt in 2014 succeeded. Travelport has reduced its debt levels to its lowest since 2008 and has strong cash flow.

Sabre and Amadeus, who also were in the hands of private equity and got loaded up with debt, have brought down their debt ratios more effectively since Sabre went public in 2014 and Amadeus went public in 2010.

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Tags: global distribution systems, private equity, travelport

Photo credit: The executive team of Travelport, with CEO Gordon Wilson in the middle. The long-predicted buyout of Travelport has happened at a premium of about twice the market capitalization of the company. Travelport

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