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Summary

  • Priceline made a smart move in acquiring OpenTable.
  • The keys are international, differentiation, and mobile payments.
  • Yelp and GrubHub could both be the next acquisition targets.

When Priceline (NASDAQ:PCLN) announced it was buying OpenTable (NASDAQ:OPEN) for $2.6B last week, a lot of smart people chimed in with thoughts.

It's a fascinating deal, so I wanted to share some quick thoughts too. My initial reaction was that it was a smart acquisition by Priceline, especially in light of the recent dip in tech momentum names.

International

My main thinking here is international. OpenTable has a huge presence here in the U.S., but has struggled to grow abroad. In a conference call after the announcement, Priceline's CEO Darren Huston mentioned the success of Kayak (acquired for $2.1B in 2013) and how they can use that same roadmap for OpenTable's international expansion.

Differentiation

OpenTable should also help provide Priceline with some much-needed differentiation. It seems like it's a race to the bottom price with a lot of these OTAs. The way they try to differentiate is by building customer loyalty. With OpenTable, Priceline can offer more bundled packages and reward programs to users. For example, imagine a package where booking your flight, hotel, and rental car together on Priceline could also get you a free or discounted meal at top restaurants.

Mobile Payments

I also think there's a lot to be bullish about for OpenTable's new mobile payment product. I haven't used it yet personally but a few friends have and they've been impressed. All you have to do is add your credit card to the OpenTable app before your meal and you can pay your check right there in the app. This product still has a lot to prove out, it's still in pilot at just a handful of restaurants in San Francisco, but I think with Priceline's cash behind them, OpenTable could roll this out in a big way.

Yelp and GrubHub Suitors

Regardless of whether or not it was a good buy for Priceline, another interesting side effect was how other stocks reacted. The main ones to note were Yelp (NYSE:YELP) and GrubHub (NYSE:GRUB), which both took off (14% and 7% respectively) after the announcement.

Leigh - who's been putting out some great material on the Estimize blog lately - took note and surmised about them both as potential acquisition targets. Here he is with some great points per usual:

"The average predicted takeover price on Mergerize is $7.81B, and the news of the OpenTable deal just increased Yelp's market capitalization by over $750M to $5.34B. If Yelp were to be acquired today for the same 47% premium that Priceline paid for OpenTable, the sale price would be around $7.85B. Maybe there is some wisdom in the crowd for M&A after all."

Leigh is predicting Yahoo! (NASDAQ:YHOO) as the main acquirer for Yelp here, however, I think another one of the likely candidates here could be Expedia (NASDAQ:EXPE).

Priceline has been known for their big acquisitions, which include OpenTable, Kayak, Agoda, and Booking.com (considered by many to be one of the best acquisitions of all time). With all those properties combined they are the leader in online travel by a huge margin.

But Expedia Group (which includes Hotels.com, Trivago, Hotwire and Venere) is the second largest travel company and has been making some moves recently. For example, their strategic deal with Travelocity will give them access to another ~10.6mm uniques.

With the Priceline and Expedia arms race heating up, I could see Expedia going after a big acquisition like Yelp to even the odds a bit.

YelpHub

Another option I think would be interesting here is a GrubHub acquisition by Yelp. Okay, so maybe it's a far cry since Yelp doesn't really have the cash, but hear me out. Combined, Yelp-GrubHub (YelpHub anyone?) would make up the biggest restaurant and food delivery service by a huge margin.

The synergies (buzzword!) there would be numerous. Yelp - which has a massive sales force and relationships with many more restaurants than GrubHub - would immediately be able to offer food delivery as part of their platform. GrubHub could also source Yelp reviews directly into their listings vs. using their own.

And as Leigh points out, then Yelp would just need to double down on reservations via their SeatMe acquisition and undercut OpenTable on pricing to gain market share.

I also think YelpHub would be a good move in light of all the recent food delivery startups taking aim and coming on strong like Munchery, Sprig, SpoonRocket, Zesty, etc.

As Jeff Weiner noted, it will be interesting to see if Priceline can do for OpenTable what it did for Booking.com. Will also be interesting to see who else comes a-knockin' for Yelp and GrubHub.

Source: Thoughts On Priceline's Acquisition Of OpenTable... And Who Will Buy Yelp And GrubHub