By Ben Kolada
For a price comparison website, Kayak Software (NASDAQ:KYAK) appears to be settling for a relatively low price in its purchase by online travel giant Priceline.com (PCLN). At first glance, Priceline's offer for Kayak appears respectable. The $40-per-share bid is the highest Kayak's shares have seen in its short life on the Nasdaq. Using an enterprise value of $1.65bn, Kayak is being valued at 5.8 times trailing revenue and about 5.6x full-year 2012 revenue.
But as we look closer, we see that Kayak is being valued only slightly higher than Priceline's current trading valuation, and that's excluding any takeout premium for the acquirer. With an enterprise value of roughly $28bn, Priceline trades at about 5.5x trailing revenue and 5.3x 2012 revenue. (Priceline shares, which have tacked on roughly 15% so far this year, were unchanged on the news of its largest-ever acquisition.)
Valuation - especially for the acquirer - is a key concern in this transaction because unlike most tech deals, Priceline is covering almost three-quarters of the cost of its purchase with equity. Under terms, Priceline will hand over $1.3bn in stock and $500m in cash for Kayak. As mentioned, paying with paper is relatively rare these days, because cash is king when it comes to M&A. In fact, according to The 451 M&A KnowledgeBase, Priceline's acquisition of Kayak is one of only 12 deals done by US public acquirers so far this year where stock has accounted for more than half the total consideration.
Despite faster growth, Kayak's valuation is only slightly above Priceline's
Source: The 451 M&A KnowledgeBase, 451 Research estimates. *Calculated as of 11/8/12.