Despegar, Latin America's largest online travel company, will pay much, much less than its original $136 million proposed price to buy Mexican travel agency Best Day. Expect similar tough haggling over deal terms by travel companies across the globe.
In an acquisition put through the upheaval of the pandemic, Despegar said Thursday it would now acquire the Mexican travel agency Best Day at a discounted price.
In January, Despegar first proposed buying Best Day for $136 million. But later during the first signs of a travel downturn from the pandemic, the Argentine-based travel agency sought to renegotiate the price.
Despegar will now pay about $56.5 million for Best Day, payable over three years without a cash outlay. The company will pay up to $20 million extra within four years, depending on additional terms tied to share price.
Best Day has cut about 40 percent of its costs through a mix of layoffs and other cost-saving measures.
The revised transaction terms require the approval of relevant authorities, expected before the end of September. The base purchase price of $56.5 million is seven times Best Day’s earnings before interest, tax, depreciation, and amortization — a measure of profit — of $8 million last year.
In 2019, Best Day booked about $140 million in revenues, with about 70 percent of its revenue generated online. About 95 percent of its revenues came from hotels or packages rather than just airfare.
Large international travel resellers like Expedia Group will focus on their core markets rather than on Latin America, said Despegar Chief Financial Officer Alberto López-Gaffney, in a conference call with investors.
“We expect less marketing spend [by these foreign companies],” said López-Gaffney, who added that Despegar has a chance to consolidate online share in Latin America using its recognized brand name and Best Day’s strong brand.
“As demand starts to recover, we expect a rapid build-up in domestic travel [in Mexico, relative to the rest of Latin America],” said López-Gaffney.
During the three months ending March 31, revenues for the Argentina-based Despegar declined 34 percent, year-over-year, on a currency-adjusted basis to $76.1 million.
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Photo credit: Cityscape of Buenos Aires, Argentina. JumpStory