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Priceline Hits the Sweet Spot With OpenTable Bid

Priceline Hits the Sweet Spot With OpenTable Bid

It appears Priceline just cut a good deal for itself with the acquisition of OpenTable. "This is how you are supposed to do acquisitions, because it minimizes the risk and you get economies of scale due to easy skills transfer," said tech analyst Rob Enderle. "While there is risk with any acquisition, both properties should be able to add value to the other."

By Erika Morphy
06/16/14 7:05 AM PT

Priceline last week announced an agreement to buy OpenTable for US$2.6 billion. Priceline is paying $103 per share for the online restaurant reservation service in the all-cash transaction.

The companies are positioning the deal as a synergistic play in which they will be able to enhance services for both of their customer bases.

OpenTable will provide Priceline with an entrée into the restaurant marketing services space. There is also the company's "highly-valued" booking experience, Darren Huston, president and CEO of Priceline noted.

OpenTable, for its part, will have more resources to fuel its global growth and develop additional apps for desktop and mobile devices.

Complementary Services

Both companies come to this marriage with more than respectable traffic. Priceline boasts bookings of more than one million guest reservations per night. OpenTable seats more than 15 million diners per month.

"This is a natural acquisition, because it is a similar to their core business but in an area that they don't currently occupy," Rob Enderle, principal of the Enderle Group, told the E-Commerce Times.

"That means they hit the ground running and are less likely to destroy what they have acquired," he pointed out. "This is how you are supposed to do acquisitions, because it minimizes the risk and you get economies of scale due to easy skills transfer. While there is risk with any acquisition, both properties should be able to add value to the other."

Mergers among online booking companies, whether they are in the travel sector or related areas such as restaurant booking, or takeout and delivery, are a fairly common tactic to grow -- especially if they have complementary user bases or service different geographic areas.

Last year, for instance, two restaurant delivery apps -- Seamless and GrubHub -- announced plans to merge. The apps had little overlap in their delivery coverage, and the merger created a company with a combined footprint of 500 cities and more than 20,000 takeout and delivery establishments.

In a deal that could have served as a model for the Priceline-OpenTable deal, TripAdvisor last month acquired Lafourchette, a reservation system in Paris that has more than 12,000 restaurants in its service area.

Priceline and OpenTable have little overlap in their geographic reach, although there is some. Priceline has become far more active in global markets, deriving much of its profit from outside the U.S. OpenTable remains largely a U.S. market-oriented application, although it does have a respectable global footprint as well. Some 125 million people worldwide have used its mobile apps to book a table.

Brand Vitality

The drawback to such transactions, in theory, is that the most important tangible value an online service provider has is its brand name. At the smaller end, this does happen. A company is folded into its parent, and only its most loyal users ever think of it again.

That is not likely to happen with this transaction. OpenTable will continue to operate as an independent business within Priceline after the deal closes. Its current management team will stay in place.

Even if OpenTable were incorporated into Priceline's product line, Priceline would be a fool to get rid of the OpenTable brand, said David Johnson, CEO of Strategic Vision.

"We are seeing more and more takeovers and buyouts, but brand name still matters in the big leagues," he told the E-Commerce Times. "People respond to the name. They have a relationship with [OpenTable] like they would any other brand."


Erika Morphy has been writing about technology, finance and business issues for more than 20 years. She lives in Silver Spring, Md.


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