booking.com priceline biggest travel acquisition 2000s
751 days ago
 

Why Priceline’s purchase of Booking.com was the most profitable travel deal of the 2000s

In July 2005, The Priceline Group acquired European hotel booking website Booking.com, helping to catapult Priceline from a profit of $10 million in 2003 to a profit of $1.1 billion last year.

No other acquisition in the digital travel space in the 2000s has proven as profitable.

Priceline bought Booking.com for a mere $135 million in cash.

The parent company folded an earlier purchase, ActiveHotels.com (for $165 million in cash), into the Booking.com’s subsidiary. Together, their agreements with hotels jumped from 10,000 to more than 100,000.

Since then, sales have soared.

PCLN’s overseas revenues grew at a compound annual growth rate of 68% between 2006 and 2010, compared with a 15% rate for domestic US revenue.

Gross bookings from international markets as a percentage of total bookings have spiked from 55% in 2007 to around 78% last year.

According to Priceline’s 10-K, international operations accounted for four-fifths of consolidated operating income.

Booking.com is also the king of Google AdWords, as Tnooz has noted before.

Why did the purchase work out so well?

Herman Leung, senior analyst, internet equity research at Susquehanna International Group, points out in an interview:

The Booking.com deal was far and away the most profitable acquisition in the travel space in the 2000s.

The importance of the deal is so large that I think it should contemplate changing its name to Booking.com. It’ s that big and impactful of an acquisition.

I can’t think of another company that owes tens of billions of market cap to a company that it acquired.

Booking.com has consistently driven the profit and cash flow going to the bottom line of Priceline.

Dan Su, senior equity analyst at Morningstar in Chicago, has this say:

Yes, Priceline’s acquisition of booking.com in 2005 has been the most profitable acquisition in the online travel space over the past decade.

Priceline stock returned about 2,680% on a cumulative basis since the July 2005 acquisition.

I think the bulk of it is driven by the strong growth in Europe thanks to Booking.com.

booking.com priceline biggest travel acquisition 2000s

What explains the success of the deal?

A recent profile of Priceline in Fortune magazine touched on some reasons for the success of the acquisition.

  • Europe was an unexpected cash cow. Europeans spend many more weeks and weekends on vacations than Americans, meaning the opportunity for extracting repeat business from satisfied customers was much greater than in the US.
  • Booking.com’s results were heavily driven by the agent model, which Europeans were familiar with. Priceline averages a 15% commission on each room reserved, analysts say, and payment is usually collected at the time of the hotel stay.
  • After the merger, Priceline resisted the temptation to bring the company onto its US-based merchant model. It also didn’t disrupt the entrepreneurial structure in place at its takeover target.
  • In another perk for Booking.com, the European hospitality market has been far less consolidated than in the US, with far fewer hotel chains and far more independents who often struggle to market their businesses.

Priceline’s own verdict

Company spokesperson Brian Ek told Tnooz:

The profitability comment on Booking.com…. strikes me as a bit simplistic when you consider that our European hotel business is actually a combination of two acquisitions – Active Hotels in the UK, which was our first, and then Booking.com.

There was a lot of knowledge and best practice sharing that went into the combined business you see now.

Also, we have two other contributors to our overseas success in Agoda.com (our Asia-based hotel service) and Rentalcars.com, based in the UK which is our international car hire brand.  It was named TravelJigsaw at the time we acquired it.

I can say that the Active/Booking acquisitions have worked out well for us, mostly for the following reasons:

  • There was very little overlap in terms of the hotels that priceline and each of these companies was working with, so it was highly additive in terms of supply,
  • They have a business model that hotels like,
  • There was not much complicated technology integration with priceline, as we did not try to put all companies onto the priceline platform (so no major additional post-acquisition IT investment required),
  • The existing management teams knew their businesses very well and remained with us after the acquisition,
  • Finally, their views toward cost controls are very much in sync with priceline.com.

To be sure, Booking.com isn’t the only reason Priceline has seen so much growth over the years.

Rental car bookings worldwide have also experienced strong growth rates of as high as 55% year-over-year in recent quarters.

As Ek notes, that has been partly been driven by the company’s acquisition of TravelJigsaw, since renamed Rentalcars.com.

Looking ahead

What might be the big travel deal of the 2010s?

One possibility would be a Priceline takeover of CTrip.com, China’s OTA powerhouse. While state regulators might not embrace that today, the regulatory situation is clearly in flux.

As a prelude to a takeover, Priceline could take a stake in CTrip, similar to Expedia’s investment in  eLONG, another major OTA in China, which expanded last week.

In August, Priceline forged a partnership with CTrip.com.

Booking.com will now provide an overseas hotel reservation platform for domestic Chinese consumers under a commission deal.

Whatever the future holds, Booking.com clearly has the potential to be the gift that keeps on giving.

Article corrected on 3 October to reflect a typo on the date of Priceline’s purchase of Booking.com.

NB: Image of the Booking.com headquarters in Amsterdam courtesy of pandemia/Flickr/Creative Commons.

 
 
Sean O'Neill

About the Writer :: Sean O'Neill

Sean O’Neill is a New Jersey-based reporter for Tnooz. He's also a regular contributor to BBC Travel.

Follow him on Twitter, Google+, and his personal site .

 

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  1. Venkat

    So Booking.com working in a Agent Based Model ?

     
  2. James

    It would be nice to see an article about what inventory is shared between the different PCLN owned domains. My lodge gives inventory to booking.com, when, if ever, will it show up on searches for other sites as well.. kayak? priceline? agoda?

     
  3. Richard Carrick

    It must also be said that Active Hotels had exceptional leadership, people, technology and analytics. In the right combination, together with no small amount of luck and timing, they tend to determine what makes a good acquisition, but it’s important not to discount any of these ingredients in any analysis.

     
    • Sean O'Neill

      Sean O'Neill

      Richard,
      So glad you mentioned those other variables, which sound vital.
      I’m surprised more case studies haven’t been written about the deal.
      If any MBA or PhD candidates are reading this, pay attention.
      Sean

       
  4. Peter Matthews

    As someone who saw first hand the Priceline/Active/Bookings acquisitions taking shape, the obvious advantage Active and Bookings had over other OTAs was that they both focussed on growing higher margin hotel bookings when competitors remained obsessed with flights and ‘dynamic packaging’. Priceline realised this was a valuable competitive advantage and let them get on with it. It has taken years for competitors to try and catch up with their inventory and clarity of brand proposition. @nucleuslondon

     
    • Sean O'Neill

      Sean O'Neill

      Peter,
      That’s an excellent point that should have been mentioned in the article.
      Thank you!
      Sean

       
  5. David Davidsson

    That building shown to be the HQ hasn’t been used by the company in almost a year.

     
    • Sean O'Neill

      Sean O'Neill

      David,
      Thanks for pointing that out. That was the only free-for-republication photo I was able to find. Perhaps I should have gone a different route.
      Best,
      Sean

       
  6. Merjerz

    Excellent article highlighting the challenges, and potential, for M&A.
    Merjerz mavericks have recently anticipated your suggestion of PCLN-CTRIP, see: http://www.merjerz.com/deals/priceline-ctrip-com. Go to merjerz.com to see other travel deals, be a voter and help the best M&A happen. Some interesting travel -industry ideas (eg. Google-TripAdvisor) are waiting for your insight.

     
  7. Brad Gerstner

    I think this article under-states what PCLN has accomplished. Active, Booking, and Agoda represent three of the most successful and profitable M&A deals of all time – not to be limited to either the internet or to travel.

     
    • Sean O'Neill

      Sean O'Neill

      Hi, Brad,
      Thanks for your comment. As founder of Altimeter Capital and someone whose well known for his expertise on disruptive startups, your opinion is especially valued.

      Best,
      Sean

       
 
 

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