The Priceline Group’s purchase of Momondo for $550 million represents the company’s first acquisition of scale since buying OpenTable for $2.6 billion in 2014.

It is also the newly appointed Glenn Fogel’s opening strategic move since becoming CEO in January of this year.

NB: This is an analysis by Jamie Hutton, an associate at Livingstone Partners.

We assess the group’s latest acquisition – following deals in recent years for the aforementioned OpenTable and Kayak in 2012 – in the following way.

Glenn Fogel – the right man to drive future growth

For a company that has grown EBITDA at a compound annual growth rate of 33% from 2010 to 2015 and increased its market cap from $10 billion to $81 billion since the start of 2010, Fogel’s appointment came at an unusually challenging time for the travel giant.

The success of Priceline’s core business, which is growing at 26% year-on-year (measured by key KPI: room nights), has been somewhat overshadowed in the last nine months by the sudden resignation of Fogel’s full-time predecessor and the more recent $941 million impairment of OpenTable.

It was, therefore, imperative that the choice and appointment of a new full-time CEO was made in a strong and unequivocal fashion.

Despite a perceived lengthy eight-month search, the announcement of Fogel to the top job came as no real surprise.

The trust and credibility bestowed upon him by Priceline’s leadership team has been earned over his 17-year tenure, with his role spearheading transformational transactions providing evidence of his exquisite strategic foresight.

These include:

• UK-based car hire broker Traveljigsaw (now RentalCars), purchased in 2010, which in 2015 generated EBITDA of £69 million for the group.
• Dutch hotel site Booking.com, bought for $133 million in 2005, which now accounts for over 80% of Priceline’s $10 billion revenue, making it arguably one of the most successful acquisitions ever made.

Momondo – back to basics provides a compelling investment thesis

Despite a hefty price tag, OpenTable appeared to be a shrewd investment to most observers – and may well still turn out to be.

Priceline was looking beyond traditional travel services into how they can capitalise on consumers during the holiday itself and the choice of dining locations stood out as an obvious place to be.

However, having written down over a third of the cash paid for the asset, it is no surprise that Priceline’s subsequent acquisition of scale is right at the heart of its core travel service offering.

The acquired Momondo and Cheapflights brands will naturally sit underneath Kayak, the group’s existing metasearch offering. In a competitive and extremely active market, where consolidation has been king, the acquisition also takes Momondo out of reach of Priceline’s closest rivals.

Furthermore, also:

• adds substantial weighting in Europe and the UK and Scandinavia in particular, where Kayak has not had the same success as in Western and Southern Europe.
• provides immediate scale benefits, which drive Priceline’s global supply advantage and expand the group’s geographic footprint.
• generates synergy benefits across shared services, with a focus on developing an integrated backend technology platform across all desktop and mobile platforms.

The competitive landscape – the usual suspects and the disrupter

Priceline (Kayak, $1.8billion, 2013; OpenTable; and Momondo) and Expedia (Trivago, $632 million, 2013; Wotif, $658 million, 2014; Orbitz, $1.6 billion, 2015; and HomeAway, $3.6billion, 2015) have been trading significant blows in the acquisition ring for a number of years, while China focused Ctrip’s recent $1.7 billion acquisition of Skyscanner (helped by investment from Priceline) reinforces its position as a global competitor.

Up and coming challenger and travel disrupter Airbnb is expected to become the world’s fourth-largest online-travel intermediary, with peer-to-peer accommodation continuing its rapid ascent in both leisure and business travel.

Priceline and Expedia have both, unsurprisingly, dismissed the perceived threat of Airbnb, instead choosing to focus on the new enlarged travel market, which now includes vacation rental and urban sharing as a result of Airbnb’s influence, as a huge opportunity.

The future – organic growth and future acquisitions

It is impossible to predict who will be the frontrunner, let alone the clear winner, in the fight for supremacy – what we do know is that an ongoing shift to booking online will increase an online global travel market already worth over $1.2 trillion, providing an excellent market backdrop for more than one to prosper.

Undoubtedly, the big players will complement organic growth with future acquisitions in their quest for global domination and the key driver to crown an undisputed champion may well be the fighter who successfully targets and integrates transformational opportunities.

Following OpenTable, Priceline needs to be brave and continue its journey into broader travel services with tours and activities an attractive next target.

Although TripAdvisor snapped up Viator for $200 million in 2014, GetYourGuide could well be available following its latest $50 million fund-raise at the end of 2015.

Alternatively, maybe historic murmurings will come to fruition and Priceline could look for a knockout blow, with an audacious offer for TripAdvisor itself.

NB: This is an analysis by Jamie Hutton, an associate at Livingstone Partners, an M&A specialist in the travel sector which advised Rentalcars (TravelJigsaw) on its private equity MBO and eventual sale to the Priceline Group.