Ctrip International has agreed to pay £1.4bn ($1.7bn) for Skyscanner, the airfare comparison website, in a move that will help the Chinese online travel group better target the country’s booming outbound tourism industry.
Some 120m Chinese tourists went abroad last year — more than double the number five years earlier, according to the China Outbound Tourism Research Institute.
Scotland-based Skyscanner had already spotted the Chinese opportunity: last year, its user base in the country grew 65 per cent. In particular, its Chinese mobile users doubled in volume. Skyscanner also acquired Chinese search provider Youbibi in 2014.
“Ctrip knows it needs to make international acquisitions to grow its own tech,” said Shaun Rein, managing director of China Market Research Group. “International investors have seen Ctrip as a slow mover in a fast-growing market.”
Ctrip’s operating margins in 2015 were 3.5 per cent, compared with the most recent results of 5.7 per cent and 7.6 per cent for Expedia and Kayak, two international rivals.
Skyscanner’s chief executive Gareth Williams is to remain at the helm. He told the Financial Times the company would maintain its autonomy and Edinburgh operations base. “Ctrip realized that there is a difficult history of international brands succeeding in China and vice versa so it is in their interest for us to remain independent,” he said.
The deal represents a hugely profitable exit for Scottish Equity Partners, the 13-year-old company’s largest shareholder. As a key early investor, it owns a third of the company and stands to make about £470m, after a £9m initial investment.
Skyscanner is focused on the online travel market shifting to mobile devices and three-quarters of Ctrip bookings are now made online using smartphones, according to Jeffrey Towson, professor of investment at Peking University. Mobile visits account for 59 per cent of Skyscanner’s total traffic.
Skyscanner’s engineers are also employing artificial intelligence to build a voice recognition system within its app. Mr. Williams estimated that 17 per cent of Chinese travellers use voice search on their phones, a trend that will continue to grow globally.
Alan Diamond, of law firm Pinsent Masons, which has worked for Skyscanner since the company’s early days, said the deal showed Chinese companies’ interest in technology acquisitions amid growing overseas investment.
“Whether it ends up as a trickle or a flow remains to be seen, but I certainly think we will see more deals involving Chinese investors in the near future,” Mr. Diamond said.
The acquisition is the first under the leadership of Jane Sun, who was appointed Ctrip chief executive last week. Ms. Sun, who has worked in Silicon Valley and attended university in Florida, had been widely expected to broaden Ctrip’s focus to include an international audience.
“Jane is the one who goes on CNBC and who can make deals with foreigners,” Mr. Rein said. “There’s a generational shift within Chinese corporates. It’s not about who has the Communist party contacts any more, it’s about building a global relationship.”
Skyscanner was valued at $1.6bn during a fundraising round in January, placing it in the small club of British “unicorns”, or tech companies worth more than $1bn. At the time, the Silicon Valley technology investment group Sequoia took a stake. Neil Shen, Ctrip’s co-founder, founded Sequoia Capital China in 2005.
James Jianzhang Liang, co-founder and executive chairman of Ctrip, said: “Skyscanner will complement our positioning at a global scale, and we will leverage our experience, technology and booking capabilities to help Skyscanner.”
Prof Towson said: “The biggest opportunity for Ctrip is to connect two massive groups — Chinese consumers, and international airlines and hotels. What they really need next is a hotel network. That’s where the real power is, with tens of thousands of hotels across Europe and Asia as potential clients.”
The deal adds to the $191bn worth of Chinese overseas acquisitions that were announced during the first nine months of this year.
But some deals in tourism are heading in the other direction, with Airbnb in talks to buy China’s second-largest home booking service, Xiaozhu.
Skyscanner is set to expand its engineering base throughout Europe with the deal, hiring across its offices in Glasgow, Edinburgh and Barcelona, as well as in London, where it plans to double its engineering team to 120 over the next 18 months.
“Our investment in Europe will grow unabated, it remains the core of our operation,” Mr. Williams said.
“There will be modest growth in our Shenzhen and Beijing offices, but no shift of jobs into China.”
The deal is expected to be completed by the end of the year.
By Courtesy of FT