If Travelport is indeed acquired by new owners and becomes a
privately held company, that move could help it overcome operational and
financial hurdles and make it a stronger company, according to industry
Last week, Langley, England-based Travelport announced it
had entered into an agreement to be acquired by Siris Capital Group and
Evergreen Coast Capital Corp., the private equity affiliate of Elliott
Management Corp. Earlier this year, Elliott Associates, Elliott Management
Corp.'s flagship fund, acquired a nearly 12% stake in Travelport.
The acquisition agreement, which has been approved by
Travelport's board of directors, is subject to regulatory and shareholder
approval. Additionally, the company can seek other acquisition proposals and
terminate the current agreement through Jan. 23 if a better one comes along. If
the Siris-Evergreen deal goes through, it is expected to close in the second
quarter of 2019.
Robert Cole, Phocuswright's senior research analyst for
lodging and leisure travel -- also the founder of hotel marketing strategy and
travel technology consulting company RockCheetah -- believes an acquisition
will go through.
"The cat's a little out of the bag at this point,"
Cole said. "I think a transaction will occur." The question, he said,
is "with who, at what amount?"
The agreement would see Siris and Evergreen acquiring
Travelport for $4.4 billion in a cash. Others could be interested, Cole said,
most likely other investment groups.
In a note about the acquisition, Dan Wasiolek, senior equity
analyst at Morningstar Equity Research, said it is possible others could bid on
the company because its price is "attractive," but he does not
believe Travelport's main competitors, Sabre and Amadeus, would be interested
because of potential antitrust issues. He also said OTAs are unlikely to get
involved "as those players prefer to invest in higher-growth verticals,
like experiences, vacation rentals and emerging market regions."
Henry Harteveldt, industry analyst and founder of Atmosphere
Research Group, said the potential acquisition "is the chance for a reset
"Travelport has not evolved itself to the same extent
as Amadeus and Sabre, its two primary competitors, over the past few years,"
he said. "The challenge that poses to Travelport is that investors want to
see not just profits but growth, and while Travelport has some very helpful
business units -- like eNett, which does payments -- it shed its IT services
for airlines, and that's really where the growth is, or one of the growth
He also said Travelport has been less successful than its
peers in creating products, pointing specifically to products for hotels.
Cole said Travelport has lower margins and more debt than
its competitors. It also faces operational complexity that is not a factor for
Sabre or Amadeus: Travelport essentially runs three core systems -- Worldspan,
Apollo and Galileo -- each of which works slightly differently, and migrating
entire feature sets to one system is a very expensive endeavor. If a decision
were ever made to move to one core system, Cole said, Travelport would also
have issues with clients facing uncertainty.
"I think the bottom line is they have a complicated
business that needs to be simplified," Cole said, "and how do they do
that most effectively given their debt, given their current profit margin,
given their current ownership? How do they work through that? ... I think going
private probably makes the most sense for them, and at some point they
straighten this stuff out, and they'll be able to go public again."
Neither Harteveldt nor Cole expected regulatory hurdles with
a Travelport acquisition by Siris and Evergreen. The analysts also agreed that
an acquisition and privatization of Travelport would not affect the GDS
As for its impact on U.S. agents, Cole said the announcement
could give agencies negotiation opportunities if their contracts with
Travelport are up for renewal in the short term.
Harteveldt predicted it would be "business as usual"
in the near term.
"My hope," he said, "is that the new owners
of Travelport in fact will allow, if not even encourage, Travelport to invest
in solutions to improve the value Travelport offers to the travel agency