Chinese travel titan Ctrip is taking its biggest step yet to global expansion with a $1.745 billion deal for British travel search giant Skyscanner.
The US-listed Chinese firm hopes tapping the 60 million travellers who use Skyscanner to compare the price of flights, hotels and other tourism essentials every month will bolster its brand name and help it grow beyond Asia.
The November 23 deal, announced as the company disclosed its third-quarter earnings, is the latest sign of Ctrip's acquisitive streak, which has seen it complete a series of deals in recent years. Its prospects as a provider of travel services to the surging Chinese market has impressed investors, too — it received an overwhelming demand for its $2.3 billion dual-tranche equity offering in September, the largest ever such offering from an Asia ex-Japan issuer.
Helped by that warchest, Ctrip will cover most of the Skyscanner deal with cash. It should close by the end of this year, according to the company announcement. “The valuation is very much based on how much we [Ctrip and Skyscanner] can make in the next five to 10 years,” said Jane Sun, chief executive officer of Ctrip. She cited synergies she expects in from combining Skyscanner's front-end metasearch capacity and Ctrip’s experience in holiday booking.
Skyscanner completed a $194 million round of funding, which valued it at $1.6 billion in January this year. Founded in 2001 in Edinburgh, Scotland, Skyscanner claims 60 million unique users per month, and makes its money through commission, display advertising and licensing its search technology to power other companies' search facilities.
Skyscanner’s revenue grew 28% to $183 million in 2015, slower than the 42% increase in 2014. Its profits rose 5% to $34 million in 2015.
“Ctrip will gradually but steadily pursue international opportunities,” said James Leung, co-founder and chairman of the board at Ctrip, during the November 23 conference call. “Ctrip has already had a very wide and deep product coverage, especially in China and in Asia…but it takes a while to establish our brand name in other countries,” he said.
Acquisition strategy
Ctrip has been busy sealing deals since it transacted a share swap agreement with its biggest domestic rival Qunar in October 2015, which gave it a 45% voting interest in Qunar in exchange for 25% of Ctrip. The $7 billion merger ended a long-time fight between the two biggest online holiday planners in China and according to Summit Research, created a travel giant that accounts for 70% to 80% of holiday bookings in China.
That domestic dominance positioned Ctrip for a shopping spree onshore and offshore. In January this year, Ctrip bought around a quarter of MakeMyTrip, an Indian online travel company, for $180 million. It also paid $463 million this summer to get a slice of state-owned carrier China Eastern Airlines, and said it might increase its shareholding over the next 12 months. In August, the company announced it would team up with General Atlantic to take a stake in Ocean Link, a private equity firm that invests in tourism and related businesses.
Recognising Skyscanner gives the company an easy way into the global – especially European – market, Leung said the Chinese travel giant would look for other acquisition targets around the world. “We'll continue to pursue international opportunities and acquisition targets, especially within Asia, to grow our global presence,” he said.
Sun said the company would focus on travel-related businesses in its hunt for acquisitions, and pick the top players in each vertical. “We’ll always select the number one and number two players in each vertical and try to achieve synergy by teaming up with these industry leaders,” she said, adding that each deal had to either enable the company to extend business line or deepen geographic penetration.
On the Skyscanner investment, Sun said it would allow the company to “strengthen our air ticketing business in the global footprint”. Four business areas – accommodation, transportation ticketing, package tours and corporate travel service – were the main contributors to Ctrip’s $826 million net revenue in the third quarter of 2016.
No information on the advisory banks has yet been disclosed.
