Deals

Gillian Tan is a Bloomberg Gadfly columnist covering deals and private equity. She previously was a reporter for the Wall Street Journal. She is a qualified chartered accountant.

This is a final boarding call for Priceline Group. 

Back in June, my Bloomberg Gadfly colleagues encouraged the $72 billion giant to consider an acquisition of its $9.2 billion rival TripAdvisor, an idea that holds true.

But Jeffery Boyd, Priceline's former CEO who is back in the top job on an interim basis after his successor was forced to resign, may feel more comfortable with a slightly smaller deal. After all, the company is growing at a healthy clip, and under his watch its biggest acquisition was Kayak Software for $1.7 billion.

Skyscanner -- a Scottish online travel search company -- certainly fits the bill. It was valued at more than $1.2 billion in a January fundraising round and is exploring options including a sale or IPO, according to Bloomberg News. 

An acquisition of Skyscanner may make sense for Priceline, whose annual airline ticket sales have slipped amid growing competition. In the online travel search and price comparison market, those rivals include Skyscanner and TripAdvisor, according to filings.

In Transit
Priceline's airline ticket sales are beginning to plateau, in part because of intensifying competition from rivals that now include Google
Source: Company filings

Buying Skyscanner would not only eliminate a rival but also allow Priceline to boost its advertising revenues, by adding 50 million monthly users to its bargaining table. Right now, such revenues are primarily earned by Kayak, both through placements on its websites and apps as well as from sending referrals to other online travel companies. 

Targeting Eyeballs and Clicks
Since the Kayak acquisition, advertising revenues have contributed more meaningfully to Priceline's overall revenue and are now approaching 7%. An acquisition of Skyscanner could accelerate this.
Source: Bloomberg, Credit Suisse estimates

Pre-empting a deal for Skyscanner before it proceeds with a stock market listing would save the Norwalk, Connecticut-based company hundreds of millions of dollars -- a lesson that Priceline should have learned from its purchase of Kayak. The company inked a deal just four months after Kayak's IPO and forked out $40 a share, a 54 percent premium to its $26 IPO price. 

A Skyscanner deal wouldn't be a stretch. Priceline has $4.4 billion in cash and marketable securities on hand, and its shares are projected to rise to a record over the next 12 months on what some analysts think is an "open-ended" growth story. A mix of stock and cash may appeal to Skyscanner's bevy of investors, which include Sequoia and Baillie Gifford, because it provides the chance of amplified returns. 

Taking Flight
Priceline's stock reached a record earlier this month, and Wall Street analysts expect it to climb further
Source: Bloomberg

If Priceline moves quickly, it could avoid a bidding war with its smaller rival Expedia, which itself has taken a short breather from M&A after a string of deals for the likes of HomeAway, Orbitz Worldwide and Travelocity. Continuing consolidation of smaller yet significant players remains a matter of if, not when. Priceline would be serving the best interests of its shareholders by acting fast.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Gillian Tan in New York at gtan129@bloomberg.net

To contact the editor responsible for this story:
Daniel Niemi at dniemi1@bloomberg.net