Travel Tripper is taking on a distressed asset, Pegasus. Meh. But what's interesting is that Accel-KKR is backing the deal. The support by the private equity firm is yet another sign of more rollups of hotel tech companies to come against a backdrop of hotel software investments by Amadeus, Sabre, and Shiji.
The companies didn’t disclose the terms of the deal, revealed to Skift on Monday, or how much they had previously raised on their own. No investor has a controlling share of the combined entity, said Gautam Lulla, president of Travel Tripper and the new entity.
After the companies fully merge, one of the brands may disappear. Together, they serve about 5,500 hotels and touch approximately 16 million bookings a year. Central reservation systems, a product provided by both companies, sit at the center of a lot of data and revenue generation for hotels.
“Pegasus has always been strong at distribution-facing connectivity,” said George Roukas, a partner at consultancy Hudson Crossing. “Travel Tripper has done a terrific job at building a booking engine that converts very well on brand.com sites, and they’ve got good customer service, and their demand generation capabilities are coming along nicely.”
Both Travel Tripper and Pegasus offer a central reservation system (CRS) for hotels. They will merge the systems, Lulla said.
“Travel Tripper has offerings in hotel marketing, web design, booking engines, and customer reservations systems,” said Skift Research senior analyst Seth Borko. “That means it can handle, and collect data on, almost the full life cycle of a prospective direct customer.”
Accel-KKR grew out of a joint venture between well-known venture investor Accel and private-equity firm KKR. It’s now independent, with about 10 percent backing by Goldman Sachs. It typically invests in midmarket software services businesses. It has rarely invested in the travel sector, except for a 2016 strategic investment in Cendyn, a customer relationship management provider for 30,000 hotels.
A Season of Hotel Tech Rollups
Accel-KKR joins other firms betting on roll-ups of tech companies into larger platforms.
“A handful of companies are making a serious run at creating software platforms for the hospitality sector,” said Roukas. “Tens of millions of dollars are pouring in. Look at how Amadeus has spent seven years building a new central reservation system for IHG [InterContinental Hotels Group].”
“I’m not sure if Pegasus and Travel Tripper want to be a platform player or if they have the knack to do it,” said Roukas. “Time will tell. However, even if not, this move should let them be a popular application layer on other platforms much more handily than if they each kept solo.”
Industry players have recently led a flurry of deals.
Private equity has made bets, too. On Monday, private equity firm LLR announced a majority investment Intelity, which helps hotels communicate digitally with guests and staff. Last year, Warburg Pincus took a majority stake in Duetto, which helps hotels manage their revenue.
The thesis behind the flurry of deals is that hotels have underinvested in tech relative to other sectors. Today hotels may finally have gained the motivation to invest in tech because they now recognize they need it to woo more travelers to book directly, which is cheaper than through online travel agencies that charge high commissions, said Skift’s senior research analyst Rebecca Stone, author of the report “The State of the Hotel Tech Stack 2018.”
Will Pegasus Fly Again?
Pegasus, based in Scottsdale, has had ups and downs.
Soon after its birth in 1989, it became a tech darling for medium and large corporate hotel companies, who used its reservation services. Every major U.S. hotel group has bought its products at one time or another. In particular, it helped with efficiently handling hotel connections to corporate travel agencies that used the computing systems of distribution tech giants Amadeus, Sabre, and Travelport.
In the mid-2000s, though, Pegasus began to fail to adapt to the rise of online travel agencies, who, among other things, formed direct connections with many hotel groups.
Private equity firm Proveho Capital as a majority investor, along with two other investment groups, bought Pegasus’s assets for a proverbial dollar, two sources said. Proveho faced accusations of fraud unrelated and prior to Pegasus and later the investment partnership broke up.
Under Proveho’s watch, Pegasus lost more hotel customers and at least half its annualized revenue, a source said. An attempted sale about a year-and-a-half ago failed, another source said. Since then, it has stepped up its investment in the company’s technology.
Sean Lenahan, who has been the CEO of Pegasus since early 2015, will head up the integration with Travel Tripper. Lenahan, who formerly worked as a management consultant at Deloitte, looked closely at the hotel industry’s technology for the first time with Pegasus.
“I was surprised at how much the hospitality space has underinvested in contemporary technology and practices,” Lenahan said. “Our turnaround of Pegasus went slower than I would have liked. But we stood it up on completely new systems, such as a data center migration to the cloud and rearchitecting our software to use a restful API [an application programming interface, or method of exchanging data] that provides customers flexibility in how they plug Pegasus into other tech providers.”
Travel Tripper, founded in 2005, is based in New York City. Its origins focused on helping independent and small hotel companies. But in 2017 it signed its first large enterprise deal with Caesars Entertainment, which has about 40,000 rooms.
Travel Tripper will continue to sell to hotels a content management system, internet booking engines for hotel websites that use its reservation system, and digital marketing services including hotel website design. Pegasus recently debuted a business intelligence platform to analyze reservation system and e-commerce data.
Before news of the deal, Lulla told Borko that his company’s broader plan was not necessarily to widen the scope of products it offers but rather to refine and evolve its existing solutions, such as by providing hotels more actionable insights from the data.
Many Pretenders to the Throne
By offering diverse services, Travel Tripper and Pegasus compete with different tech providers in sometimes overlapping, ways.
The market leader for central reservation systems is Sabre Hospitality’s SynXis, though that company’s clients tend to be in the limited service chain segment. Amadeus’s hospitality division offers a reservation platform and business intelligence services, though it has focused on serving major hotel groups.
Another company, Avvio, offers hotels an artificially intelligence-powered booking engine.
Several software services firms have emerged with basic reservation tools for the so-called long-tail of the market, meaning independent hotels and small hotel companies. Companies such as Cloudbeds and Hotelogix report fast growth, but it’s unclear how profitable they are given that support costs for demanding hoteliers may not be reduced commensurately when compared with full-service offerings.
Triptease also competes on a few fronts. Its flagship tool for hoteliers has been a rate-comparison widget that hotels can place on their websites to help encourage visitors to feel confident about booking direct. Travel Tripper has had a similar offering.
Since October, TripTease has expanded into offering a traffic acquisition tool. It also offers various e-commerce tools that compete with Travel Tripper.
Hotels must cross a few daunting gorges on their climb up the Mount Everest of modernizing their tech strategies.
“A failure to agree on technical standards [for communicating electronically with each other] is the key problem holding back the hotel sector from moving as fast as other verticals like retail, finance, and almost any other e-commerce industry,” Lenahan said.
“Some of the industry standards are, frankly, not uniform,” said Lenahan. “They’re disparate and not even what I would call first class. The problem that creates is you have many tech companies building tech in different ways.”
“The hospitality sector’s failure to use agreed upon best practices in how technology should be designed, coded, and implemented makes it difficult for hoteliers to have their systems from various vendors play nicely with each other,” said Lenahan. “Some are using specs from the OTAs [online travel companies] and some are using ones from industry bodies” like HTNG” [Hospitality Technology Next Generation].
The fragmented nature of the hospitality industry, where management companies, brands, real estate owners, and general managers have conflicting attitudes toward tech investment, said Stone.
Finding more technical talent is another factor. “To drive product innovation, you have to bring in expertise from other verticals outside of hospitality, whether its e-commerce, artificial intelligence, and software companies,” Lenahan said.
Private equity backing has historically helped address talent gaps.
Photo credit: Shown here is a demonstration of what a hotel's brand.com website could look like when powered by the technology of Travel Tripper, a New York-based company that has just merged with Pegasus. Travel Tripper