Discount travel site Kayak has acquired rival SideStep for $200 million. This story was set to be announced tomorrow but word is leaking all over the place after Sidestep CEO Rob Solomon told his company employees the news at an all hands meeting.
This is a two part deal. Kayak raised $196 million in a new round of financing from their existing investors (Sequoia Capital, General Catalyst Partners and Accel Partners), two of SideStep’s existing investors (Norwest Venture Partners and Trident Capital), new investors (Oak Investment Partners and Lehman Brothers Venture Partners) and debt lenders (Silicon Valley Bank and Gold Hill Capital). Prior to this new round, Kayak had raised $27 million in capital.
Kayak subsequently acquired SideStep. Terms are not being disclosed, but we are hearing that the deal was for $180 million in cash. An additional $20 million that SideStep holds in cash is being distributed as well, making the total deal size around $200 million.
SideStep and Kayak are the two leaders in the discount travel search space (along with Mobissimo and Farecast). Kayak is reportedly doing around $50 million in yearly revenues, compared to SideStep’s $35 million.
This marks quite a turnaround for SideStep. Two years ago the company was on the ropes. Founding CEO Brian Barth had been ousted. Rob Solomon, previously Yahoo’s SVP Commerce, joined as CEO and replaced 40 of the company’s 50 or so employees. In the last two years he grew the company from $14 million to $35 million in revenue, and turned it profitable. SideStep has raised $32 million in venture capital.
Twenty or so of SideStep’s seventy five employees will stay on at Kayak over the long run. Rob Solomon and a few others will remain for a sixty day transition period and will then be back on the market.
Update 1: Worldwide Comscore numbers for the four companies are below. Kayak says that there is less than 10% overlap between SideStep and Kayak users.
Update 2: I just spoke to the Kayak and Sidestep executive teams for a more complete briefing. The combined company will have 60ish employees once the merger is completed and the 60 day transition period ends. The company is very profitable on the combined revenues. In addition to affiliate fee from sales, SideStep does a large display advertising and email marketing business, which Kayak lacks. Total ticket sales for Kayak are around $2.5 billion/year. SideStep is around $1 billion.
Funny quote from the press release: Kayak’s CTO and cofounder Paul English says “As a native Bostonian, I am also personally gratified to finally see an East Coast technology firm purchasing a West Coast counterpart.” Kayak is Connecticut based; SideStep is in Silicon Valley.
Gutsy move. They must see a huge market opportunity. I don’t.
I’d be curious to know how they are financing this (what kind of financing and terms). At that level of financing, it’s more than VC, it’s PE or some radical institutional transaction.
I always found better results on sidestep. I hope they both improve.
I’d throw in Travelzoo as the largest in the discount travel search space:
http://finance....q=NASDAQ%3ATZOO
The other two mentioned aren’t even close.
Interesting trend – just heard that Quigo’s CEO is back on the market after selling to AOL.
Mobissimo can’t even be considered to be competition. Their site is just absolutely horrible; looks like a hackjob made by low-rent Indian programmers locked in a basement for a month. Ever since meeting them at the techcrunch party, it’s only reaffirmed my suspicion that management has no actual technical expertise.
Kayak is a geek toy for finding plane tickets. Nothing beats it, kudos to the team.
Can somebody just fix United.com?
Fix error:
“Twenty or so of SideStep’s seventy five employees sill stay on at Kayak over the long run.”
to:
“Twenty or so of SideStep’s seventy five employees will stay on at Kayak over the long run.”
There’s absolutely no bubble in tech.
I wonder when someone gets their eye on Iceland based flight search company dohop http://dohop.com/ as an acquisition target. They have fantastic technology but lack the marketing power of Kayak and the like.
franky, these companies bring in a combined 85 million a year in revenue. Valuing them at $200 mil is not too insane, considering.
Would love to know what their yearly profit is.
I can believe there is not much overlap in the two sites. I’m a geek, I’ve used sidestep quite a bit, and I’ve never even heard of kayak…
MGZ
Generic discount or price comparison travel web business is an incredibly shaky business where there is no stickiness to any of the current players.
Only those websites that offer something unique, such as Hotwire or Priceline, have a comparative advantage, all others’ market shares are more or less in play for the foreseeable future.
Forgive my ignorance, but what is the offering here that neither expedia or travelocity cannot fulfill for me? or is there?
Haha. I love company meetings (see photo). There are always some cool people who stand by the CEO with their arms crossed. Bad vibes, if you ask me.
Holy flat line, Batman! Those are not the kinds of traffic curves you want to see if you’re the VCs. I wonder if the founders will get much of anything out of either company after a deal like that.
@MGZ, agreed, but where does the valuation end? Was the new financing round to acquire SideStep and what is the valuation of SideStep in that case?
Kayak seemed to have $20m in cash, let’s say SideStep has the same amount in the bank. Combined $85m in revenues, in a highly competitive sector. I’ll be nice this time and say that 40% are net revenue (huge overstatement IMHO). That brings in around $35m/yearly. Over five years this would hardly cover the investments.
I repeat myself… there’s no bubble in tech.
75 Employees, $35M in revenue, not bad. That’s $466K per employee which is not a bad number at all.
I think this was a 1+1=2 deal as opposed to 0+0=still 0 deal as some of you think.
how much does expedia and travelocity worths now? according to this valuation/
Faramarz: what SideStep and Kayak do is change the game for Expedia, Travelocity, etc. They’re NOT booking engines themselves.
In an ideal world (for an Expedia stockholder! :-p), Expedia would have established its brand as universally known for having very competitive prices, so consumers wouldn’t bother going to check the prices of air + hotel + transfers + rental car + taxes etc. etc. at Expedia’s competitors. Then, you could be very competitive on some itineraries, and not so much on others. There are certainly a HUGE number of brick-and-mortar retail organizations that rely heavily this strategy.
SideStep, Kayak, FareCompare etc. take the brand ENTIRELY out of the picture. In fact, the consumer doesn’t even have to know companies like Orbitz or some of the mid-sized wholesalers-playing-retail exist.
They’re a big pain in the side of the big online travel sites. On the one hand, the Expedias of the world hate Kayak and Sidestep being able to search their inventory and let the user compare prices with their competitors….BUT, you wouldn’t want to use trickery to block SideStep et al because then you’d lose any business you might get FROM SideStep.
So who would be a likely purchaser of the combined SS + K company? Maybe one of the aforementioned co’s might buy them just to shut them down
Michael
Co-founder of TheBigDay honeymoon travel & registry company (so I know something about this industry!)
While Kayak’s numbers seem impressive, one has to wonder about how long the business model can last. They get referral fees when you click on one of the search results and book through to one of their providers. Clearly they are making good money at it, but there are two issues that make me wonder if there is a big bubble in their valuation.
First, suppliers (airlines and online travel agencies) don’t want to continue paying Kayak and others when they believe there is enough value in their own content. I know this as I’ve sat in plenty of negotiations with the top airlines execs that have told me they have no interest in paying metasearch engines in the long run (good for them!).
And maybe even more important is that I believe travelers will eventually prefer a search engine that doesn’t get paid for their results. Consumers like transparency and trust. Remember it wasn’t that long ago that regular search engines had paid placings in their results. Google ultimately proved, that completely unbiased search results are more meaningful. Unfortunately Kayak’s business model is based very directly on search results that are tied to their bottom line. Kayak maybe one of the best travel search engines out their right now, but people liked Lycos at some point too…..
Interesting combination, I’m watching!
fakesteveballmer.blogspot.com
Kudos to Steve Hafner and his team at Kayak, and Solomon, Shank, and all of Sidestep’s shareholders. This looks like a reasonable exit for them.
This is further market validation of the meta-search model that consumers and suppliers alike increasingly prefer (see PhoCusWright’s latest research showing OTA online market share declining to 40% of total bookings in ‘06) . With meta-search, consumers get to view prices from multiple sites all in one place, so they know they are getting the best available rate, and suppliers get to maintain control over customer acquisition while increasing their margins (they pay sites like Kayak a CPC or CPA fee to drive customers to their siyes directly, which is much lower than selling inventory at deep discounts to Expedia and others).
This deal looks like it values the new entity at somewhere north of $450 million. Assuming 15% margins on 85 million, that’s a P/E of 35, which seems perfectly reasonable for a growth company with market leadership in a rapidly growing space. This of course also helps other sites in the meta-search space
Nobody mentioned that SideStep had recently gotten approval for the patent for meta-search. This is what Kayak was buying along with a bit of SideStep traffic. Let’s see if they can leverage it!
Wow… congrats to both sides – this is a powerful combination of talent, traffic, and content. TripAdvisor is on notice, if it wasn’t already.
I’m glad to see a company that actually produces something that people have heard of get their hands on some serious funding.
Both of these products have made some serious headway with the perpetual traveler and they are pretty decent at that at picking out good deals. It’ll be interesting to see what the combination looks like.
this stinks of desperation. neither company was remotely profitable, despite great products and vast amounts of traffic and venture capital. (razor thin margins made negative by huge traffic acquisition costs.)
so, in a hail mary move for profitability (and probably a hasty IPO while the dream flame still flickers,) they merged and laid off one company’s staff (radically reduce internal costs) and are praying that external costs (traffic acquisition) come down as competition is reduced.
that’s why they hammer on the point that they have only 10% overlap in traffic (’cause if they do have lots of overlap, then even laying of staff won’t solve their problems.)
short.
Other than fire and hire 80% of their employees, what did SiteStep do to get to profitability?
Great deal !!! SideStep made fantastic job and Now they get real price.. Now Child become Father
insider – well, this desperate company is going IPO next year by the look of their financials.
Do the revenues number represent the amount of bookings that flowed through their systems (the way in which pricline.com reported its numbers in the dot com days)? Or do these numbers represent the real revenue- advertising (cpm/cpc) and revenue earned through cpa?
If it’s the former, then it’s desperation. If it’s the latter, then they have a winner and great IPO candidate.
wondering – it’s the latter. this is an exciting deal.
I am sure they will be bought by someone before they go IPO.
Some west coast company might buy them
.
Travel industry is huge it is more than a 50 billion dollar industry.
Cheers, Nag
Congrats to Rob Solomon, who did a great job turning SideStep around, rebuilding the team and positioning it for this exit.
In travel, size matters, and their combined market share gets them into the ballpark where the suppliers and online agencies will have to continue to play with, and pay, them.
rob’s a genius…couldn’t happen to a nicer, smarter guy. glad to see a fellow ex-yahoo notch another success under his belt.
I was always impressed with SideStep. Solid site, good results, great publicity. Hopefully Kayak can take a page from their book and run with it. Congrats to both companies.
Anthony (dotspotter) did a great job with Dotspotter & got it sold. Rob did great with SideStep & got it sold.
Who’s the next ex Yahoo (Doug, Yen?) that I know or have worked with who will sell their start up?
Impressive for Kayak. They quickly grew to deliver the best results in a very friendly format, and it’s nice to see that rewarded with financial success.
Well as long as this shift can exibit some changes in the price of traveling in the near future im not too bothered with this deal. Time will only tell if this was the right decision.
parul
http://www.bhopu.com
michael arrington – agree, IPO is strategy the raison d’etre of this merger. but if the path to public listing is exciting, why did sidestep agree to cash out? expedia trades at about 3X trailing 12 months revenues. so the new kayak/sidestep’s public market valuation will be 3X $85MM or $255MM market cap
kudos to sidestep for getting out while the going is half-decent
otherwise:
yawn
short
Congrats to the Rob and the Sidestep team. The Sidestep side of the story is interesting because the business started out as a toolbar or browser plugin metasearch (does anyone even remember that?) and then morphed the business into Web based metasearch. That kind of flexibility and courage is what I find inspirational in this story. Also, the low overlap in traffic shows that there are still huge search and discovery needs in travel that are not served by the OTAs…so contrary to conventional wisdom, the travel space is still ripe for innovation driven by what customers need and want.
I think both of these companies are solid and the transaction makes a lot of sense. What most people who’ve commented above have missed is how friggin’ huge the travel category is. You don’t need massive scale to make a ton of money in travel. This business has fantastic margins, no physical fulfillment costs, and lots of competition — a good thing if you are in the business of auctioning off traffic to all those hungry competitors with deep pockets (like Expedia, Orbitz, and Travelocity).
Airlines may say they don’t want to pay metasearch sites for traffic, but you’re a fool if you believe they will actually stop paying. Airlines have said for 20+ years that they don’t want to pay GDS (like Sabre and Worldspan) crazy fees for bookings, but guess what — they are still paying fees that are outrageously high compared to what Kayak gets paid to send a booking directly to an airline’s website.
BTW, we should really stop calling Kayak and Sidestep metasearch, because they don’t really search multiple sites. I believe Kayak is just a front end to ITA, but they’ve built a really nice UI around it. Kinda reminds me of Google — simple, fast, and easy to use. And, just like Google, they are in the advertising business, auctioning traffic off to all those hungry sites willing to compete for it. If you think Google’s business model has legs, then you have to think the same about Kayak and Sidestep.
I have great results using Kayak. I first heard about them watching the Donny Deutsch show last year and gave it a try. They are different than an Expedia and Orbitz as mentioned in the above post. And I think you have to have be users to appreciate their business and their technology on their site. Great move and looking forward to their IPO.
I have to express my doubt as to a successful IPO for Kayak. They are useful and they are currently the leader in airfare meta-search, but their business model is dated. I routinely have meetings with airlines’ ebusiness and ecommerce departments and the one constant between them all is that they are working towards a model of no longer paying for direct meta-search.
The first to back out will be the major airlines and the smaller airlines will follow. They are of the opinion that their content has value to meta-searchers which most certainly is true.
Also while the referral or booking fee is often fronted by the airline you have to realize that in the long run fee is being distributed from the airline to the consumer. Airfare meta-search was a novel idea and is extremely useful but if they are to go IPO with any success I am a firm believer that their business and revenue model will have to drastically change.
Eric, excellent coverage – timely and detailed.
I haven’t spoken w/Rob or Steve Hafner about the deal yet, so this is just conjecture. Seems like there are two additional implications we can draw from your coverage.
First, assuming the comScore’s YOY unique visitors you showed us are accurate, these are not two companies growing their user bases quickly. eyeballing it, it looks like YOY growth of 10, maybe 20%.
Which means generating more revenue from users is more important…
…which is our second implication. Rob has executed more then “quite a turnaround”. It looks like he is monetizing about 75% better then Kayak. i.e. SideStep is generating $35M in revenue from $1B in ticket sales and Kayak is generating $50M from $2.5B in ticket sales. Let’s assume there is some play in those numbers. It still looks a significant positive delta.
We drilled down on some of the other implications and rumors we have heard on our Kango blog.
Total crap – I always found better deals through SideStep. (I’m a comparison shopper and search both as well as others) In the last week I noticed a huge change in SideStep’s website – it’s basically a mirror of Kayak now- and this has just confirmed my suspicions. If you’re going to buy a company, figure out a way to keep the DEALS for the consumer!!!
Looks like Kayak has some new competition. Yahoo just launched price search as it’s default search for travel!
http://blog.kan...search_149.html
good
thanskte bizden
‘Kayak.com’, ‘Priceline.com’, ‘Hotwire.com’, ‘Travelzoo.com’, ‘mobissimo.com’, ‘SideStep.com’, ‘Farecast.com’….
Look at these names; they don’t seem to be Travel related sites. Why don’t they just buy my domain “TravelsCom.Com”? They might do better. LOL
Any news?