Travelport decided today to pull its initial public offering in London, creating some major questions for travel companies pondering going public.
In fact, Jake Fuller, PhoCusWright's senior research analyst, finance and analytics, believes Travelport's exodus from the IPO makes it unlikely that Amadeus or Sabre would execute IPOs in advance of airline-contract negotiations in 2011.
Update: Travelport issued a public statement about its move:
"The Company terminated the tender offer because it has determined the IPO Condition (as defined in the Offer to Purchase) will not be satisfied. On February 10, 2010, Travelport announced that at this time, following a review of market conditions, it has decided against proceeding with an initial public offering of shares and listing on the London Stock Exchange."
The Telegraph reported that fund managers had demanded heavy discounts and that Travelport's heavy debt burden was a major issue.
"Eleventh-hour negotiations saw the original £2.20-£2.90 a share price range cut but the cash needed to pay off the company’s heavy debt burden made it impossible to sell at such a discount," the Telegraph says.
Travelport is majority-owned by private equity company Blackstone and the Wall Street Journal, citing unfavorable and unsteady market conditions, notes that two other private equity firms recently pulled back from IPOs.
The Wall Street Journal says Travelport made the decision after "a review of market conditions."
"Since we announced our intention to float, there has been significantly increased volatility and uncertainty in global equity markets, as a result of macro circumstances unrelated to our business," says Travelport CEO Jeff Clarke, according to the Wall Street Journal.
And, the Telegraph quotes Clarke as saying that the company could revisit an IPO in the future.
An SEC filing about the move was said to be imminent.
"Travelport is a strong company with an attractive financial model and great momentum," the Telegraph quotes Clarke as saying. "We will consider bringing it back to the market at a future date, when equity markets are more favourable.”
Fuller of PhoCusWright says of the decision: "Travelport was targeting a premium valuation relative to historical GDS valuations, making it a harder sell in a difficult market. While it may be argued that a multiple premium could be justified as EBITDA should rise in 2010 with a cyclical rebound in air traffic, Travelport and peers face the uncertainty of 2011 airline contract renewals."
He adds: "It is unclear how those negotiations will impact GDS pricing and whether expected growth in 2010 could be sustained. Uncertainty is always a tough sell in the IPO process. Amadeus was reportedly working towards an IPO as well and Sabre had at least entertained the notion, but cancellation of Travelport’s offering likely pushes the others back. With the contract renewals approaching, it would seem increasingly unlikely that the GDSs will be able to make it back into the public market."
The hoped-for IPO had run into much headwind.
GEO Monitor, for one, had issued a report in recent days advising investors to avoid a Travelport IPO.
"Considering the modest growth in top-line, concerns regarding a highly leveraged balance sheet and fairly priced IPO, we do not expect significant return from the offering over our 6-24 month investment horizon and hence rate the IPO an AVOID," GEO Monitor says.
The development wreaks havoc with Blackstone's exit strategy and could impact other would-be IPO hopefuls, including Amadeus, Kayak and perhaps Sabre, although Sabre recently said it has no current IPO plans.