Travelport decided today to pull its initial public offering in London, creating some major questions for travel companies pondering going public.
In fact, Jake Fuller, PhoCusWright’s senior research analyst, finance and analytics, believes Travelport’s exodus from the IPO makes it unlikely that Amadeus or Sabre would execute IPOs in advance of airline-contract negotiations in 2011.
Update: Travelport issued a public statement about its move:
“The Company terminated the tender offer because it has determined the IPO Condition (as defined in the Offer to Purchase) will not be satisfied. On February 10, 2010, Travelport announced that at this time, following a review of market conditions, it has decided against proceeding with an initial public offering of shares and listing on the London Stock Exchange.”
The Telegraph reported that fund managers had demanded heavy discounts and that Travelport’s heavy debt burden was a major issue.
“Eleventh-hour negotiations saw the original £2.20-£2.90 a share price range cut but the cash needed to pay off the company’s heavy debt burden made it impossible to sell at such a discount,” the Telegraph says.
Travelport is majority-owned by private equity company Blackstone and the Wall Street Journal, citing unfavorable and unsteady market conditions, notes that two other private equity firms recently pulled back from IPOs.
The Wall Street Journal says Travelport made the decision after “a review of market conditions.”
“Since we announced our intention to float, there has been significantly increased volatility and uncertainty in global equity markets, as a result of macro circumstances unrelated to our business,” says Travelport CEO Jeff Clarke, according to the Wall Street Journal.
And, the Telegraph quotes Clarke as saying that the company could revisit an IPO in the future.
An SEC filing about the move was said to be imminent.
“Travelport is a strong company with an attractive financial model and great momentum,” the Telegraph quotes Clarke as saying. “We will consider bringing it back to the market at a future date, when equity markets are more favourable.”
Fuller of PhoCusWright says of the decision: “Travelport was targeting a premium valuation relative to historical GDS valuations, making it a harder sell in a difficult market. While it may be argued that a multiple premium could be justified as EBITDA should rise in 2010 with a cyclical rebound in air traffic, Travelport and peers face the uncertainty of 2011 airline contract renewals.”
He adds: “It is unclear how those negotiations will impact GDS pricing and whether expected growth in 2010 could be sustained. Uncertainty is always a tough sell in the IPO process. Amadeus was reportedly working towards an IPO as well and Sabre had at least entertained the notion, but cancellation of Travelport’s offering likely pushes the others back. With the contract renewals approaching, it would seem increasingly unlikely that the GDSs will be able to make it back into the public market.”
The hoped-for IPO had run into much headwind.
GEO Monitor, for one, had issued a report in recent days advising investors to avoid a Travelport IPO.
“Considering the modest growth in top-line, concerns regarding a highly leveraged balance sheet and fairly priced IPO, we do not expect significant return from the offering over our 6-24 month investment horizon and hence rate the IPO an AVOID,” GEO Monitor says.
The development wreaks havoc with Blackstone’s exit strategy and could impact other would-be IPO hopefuls, including Amadeus, Kayak and perhaps Sabre, although Sabre recently said it has no current IPO plans.
Related posts:
- Are Tom Klein of Sabre and Gordon Wilson of Travelport birds of a feather?
- Travelport IPO: Committed to Orbitz, Gordon Wilson CEO-in-waiting, GDSs should join the party
- Amadeus-Travelport flirt with merger, but now let’s get serious
- Travelport bosses to get IPO awards, bonuses and contracts for transition
- Sam Gilliland says HEY! Maybe add Sabre to that GDS public offering party
Definitely a surprise. It may indeed have an impact on the Amadeus IPO, but lacking the core GDS business and its relatively lean staffing profile, I don’t think Travelport pulling the plug would negatively impact a Kayak IPO.
Robert: Good point about Kayak — unless the whole IPO market is doing a stutter-step.
The airline contract renegotiations being the issue, I have also seen a few releases from Amadeus that they have signed up major airlines to 2013 or 2014.
DenHaag: The airline contracts were on of the issues, which also included the state of the economy and prospects for recovery, Travelport’s debt burden, the pricing of the IPO etc. Let’s see if Amadeus moves forward.
Well what can you say? It’s a GDS, kids. Sure, it churns cash by spinning segments, but the blood’s been being drained for *years* and hoping that they’d get a premium valuation was always wishful thinking IMHO. This is an issue for other big metal legacy CRSs with stars in their eyes, for sure. But I don’t see the Kayakers in the, um, same boat.
Stuart: The “metal legacy GDSs…” damn, you are a nouveau metal legacy poet:)
Yes, I agree that Kayak is a different animal than Travelport, but certainly the withdrawal of one of the largest travel IPOs since the Stone Ages can’t be helping Kayak’s prospects.
Pulling the IPO was a smart move at this stage! Good for them.
Dan: It took some guts for Travelport to back off… on the other hand, if the dollars weren’t gonna happen, perhaps there wasn’t much choice.