How to make Money from Travel Technology

Gerry Samuels, CEO, Travel Capital Simon Cope-Thompson, Partner, Livingstone Guarantee

Livingstone Guarantee LLP

The UK’s leading mid-market M&A boutique, focused on transactions worth between £5m and £100m plus Sole focus on M&A – no due diligence and no audit, etc. Experienced in acting for acquirors, VCs/PE houses, vendors and management 21 professionals plus nine industry advisers based in London Completed over 300 deals in the past 10 years Co-founded international partnership, Global M&A, in 2003; today this is the world’s most active partnership of investment banking boutiques, with 28 leading independent M&A boutiques covering as many territories across Europe, North & South America, and Asia/Pacific Simon Cope-Thompson one of six partners; joined in 1994; leads LG/GM&A’s Leisure and Retail Team

What are investors really looking for?

Investors across the board are looking to manage their risk. typically look for the following characteristics: Proven management team – ambition/greed of management Established business model/defensible concept History/visability of revenues, profits and cash generation No key/single customer dependencies

As a result, they

Rapid growth potential – both from the company and the market Predictable cash flow, once established

What is the most effective way of raising Development Capital?
There is no “one size fits all approach”. You need to match your/the company’s needs with the funds that are available/appropriate. Take advice early Be aware of the variety of different sources of funding (e.g. family/friends, angels, VCs/private equity, debt providers/banks) Adopt a structured process; begin at least six months before you need the cash, ideally nine months Understand your ‘walk away’ position Target funders selectively at first Create a competitive tension if possible Do not take your eye off the ball Once you’ve shaken on a deal, beware of chiselling Always aim to keep an interested investor in reserve

How should you go about developing a Business Plan & Model ?
It must be management’s strategy and not an adviser’s! It is a selling document: upbeat and accessible, but also realistic and defensible Will take three to four weeks to refine A credible adviser’s badge should enhance investor interest Will set any investor’s expectations of management and anticipated financial performance Will be heavily scrutinised and challenged during due diligence process

How should you go about developing a Business Plan & Model (cont’d)?
Contents: Executive Summary History & Background Management: proven; balanced; ambitious Products & Services: USPs; IPs; roadmap Market: defensible niche in sustainable growth market? Customers: quality of clients, relationships, sales pipeline Strategy & Prospects: growth, growth, growth Financial Summary: historic & forecast results Specific Issues: pensions, environmental, bonding

How can travel technology entrepreneurs maximise value from this sector?
Define your own personal objectives e.g. lifestyle vs build and sell Map out your exit strategy and process Get your business in good shape prior to an exit; early appointment of specialist advisors Establish a list of potential acquirers for your business Understand the rationale of potential acquirers: − Market share/position − Critical mass − Growth prospects − Geographic expansion − Customers − Profits – absolute and margins − Intellectual Property / New Product − Management − Stop the competition − Timing Key is to make it a “must have” acquisition rather than a “nice to have” bolt on

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Travel Technology Case Study

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Travel e-Business and Middleware specialist, providing a range of products, solutions, infrastructure and services Expertly addresses the complexities of International travel Exceeded revenue and profit goals: 25% net margins, FY2000

1997: Dublin operation commences 1998: Contracts signed with 4 Airlines, 2 Online Travel Agencies and Worldspan 1999: Austrian Airlines KLM-Alitalia Air Tickets Direct/Travelocity UK July: Trinity Venture Capital investment 2000: Thomas Cook Virgin.com/travel; Virgin Travelstore Qualiflyer Group Delta Air Lines Northwest Airlines April: Move to new Headquarters August: Development Centre opened in Krakow, Poland

Travel Technology Case Study

Travel Technology Case Study

Sabre acquires Gradient

Sabre is one of the world’s largest Global Distribution Systems Market Cap ~$3bn NYSE listed (Ticker: TSG) 6,000 employees Headquartered: Dallas, TX Gradient Advisors: JP Morgan Chase H&Q, Skadden Arps One of the year's largest buy-out transactions in Ireland Gradient merges with Sabre “WebRes” to form Sabre Online Travel Solutions, headquartered in Dublin Gradient offers Sabre a more flexible, middleware platform with international capabilities and long-term client base

Can travel technology entrepreneurs still continue to profit from this sector?
Major acquirers historically have been GDSs and large online players Higher premiums paid to acquire product-based companies Typical valuation ranges x8 – x12 Earnings A stock exchange listing has been an option for few travel technology companies (e.g. Optims – Paris Stock Exchange New Market, Cyberes - AIM, Datalex – NASDAQ/ISEQ) Trade sale may be the most realistic exit strategy Recent deals:
Company KDS Investor Accel Partners Atlas Venture Comtec Amadeus Sequoia Capital General Catalyst Partners Sabre Acquirer Amount $13m Transaction Date Oct 05

Travelink Optims Kayak

Undisclosed €20m est. $15.5m

Jun 05 Feb 05 Dec 04

SynXis

$40m

Dec 04

How long before the bubble bursts?

The high-tech bubble did burst in late 2000 following a spate of deals in travel technology sector There has been significant Mergers & Acquisitions (M&A) activity in online travel and specialist tour operating, fuelled by the growth strategies of Cendant, Interactive/Expedia, Sabre/lastminute.com, Amadeus Pure travel technology M&A has been quieter, save for: − hotel technology companies enabling GDS Merchant Hotel plays − “tuck-in” airline software companies to broaden the offerings of the megaairline IT players − travel search engines, the new “sexy” sector Signs of an uplift in valuations and the volume of transactions

Investment Focus
Investment in Travel Technology Specialists and Software Companies Investment in Tourism Infrastructure in Developing Markets

Investments in 2 Mobile Software Ventures:
• Payments • Content

Q&A
Thanks!

Gerry Samuels, CEO, Travel Capital gerry@travelcapital.co.uk 020 7443 5400

Simon Cope-Thompson, Partner, Livingstone Guarantee simon.ct@livguarantee.com 020 7484 4706

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