The Webjet Limited (ASX: WEB) share price won’t be going anywhere today after the online travel agent requested a trading halt this morning.
But don’t panic, this isn’t another Corporate Travel Management Ltd (ASX: CTD) short seller attack. Management has requested the halt while it launches a capital raising to fund an acquisition.
What does Webjet want to acquire?
According to the release, Webjet has entered into a binding agreement to acquire Destinations of the World (DOTW) for an enterprise value of US$173 million (A$240 million).
The acquisition will be funded by a fully underwritten accelerated pro rata non-renounceable entitlement offer, debt funding, and an issue of new Webjet shares to continuing management shareholders and DOTW’s existing private equity shareholders, Gulf Capital.
DOTW is a market leading B2B travel business that operates across the Middle East, Europe, Asia Pacific and the Americas. It currently generates approximately US$529 million in total transaction value.
The release explains that the successful acquisition would lead to a substantial increase in the scale of the company’s WebBeds business, consolidating its position as the second biggest global B2B player. Management expects it to increase WebBeds’ directly contracted hotel relationships from ~23,000 to ~28,501.
In addition to this, management believes that the attractive earnings growth profile of the combined group will be further enhanced via cost synergies and revenue opportunities to leverage DOTW and WebBeds inventory offerings across each other’s distribution networks.
Total anticipated synergies across revenue and costs estimated at US$10 million (A$14 million) per annum, once fully realised from FY 2020.
The enterprise value of US$173 million (A$240 million) to acquire DOTW represents 10.5x FY 2018 EBITDA pre-synergies and before any earn-out payment. The deal will also include a performance based earn-out of up to US$25 million (A$35 million) payable in the second half of FY 2020.
Management expects the acquisition to be mid-single digits earnings per share accretive in FY 2019 on a pro-forma basis and before synergies. This increases to in excess of 20% earnings accretive in FY 2019 on a pro-forma basis post run-rate synergies.
Webjet will raise the money at $11.50 per new share, representing a discount of 10.9% from the last close price.
While it is slightly disappointing that Webjet didn’t make a move for DOTW at the end of August when its shares were almost 40% higher than where they stand today, I still see this deal as a big positive for the company.
Overall, I expect DOTW to bolster the company’s B2B growth and underpin Webjet’s strong earnings growth potential over the next few years.
When its shares return to trade I would suggest investors take a good look at them as a buy and hold investment option.
As well as Webjet, I think these top growth shares are the ones to buy in November.
We’re living in one of the most exciting times in investing history. Innovation and a booming culture of entrepreneurship are constantly creating new companies with the potential to make forward-thinking investors very rich. Now more than ever, one small, smart investment could make a huge difference to your wealth.
That’s why at The Motley Fool we’ve been scrutinizing the ASX to uncover the kinds of companies that we believe could turn into the next Atlassian.
We’ve found three exciting companies that we believe re poised to perform in the new year. Click here to uncover these ideas!
Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Corporate Travel Management Limited. The Motley Fool Australia has recommended Webjet Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.