Online travel group Webjet has agreed to pay $240 million for a Dubai-based travel group, in a transaction it says will secure its position as the world's second largest hotel booking wholesaler.
Linking hotels with travel agents, Destinations of the World (DOTW) operates in the Middle East, Europe, the Asia Pacific and the Americas, and Webjet says it will compliment its own WebBeds wholesale business.
Webjet, which has a market value of $1.5 billion, on Monday announced the transaction and that it would tap investors for $153 million through a nine-for-one entitlement offer to pay for DOTW, along with $102 million in debt.
About $14 million in synergies realised between the two companies, and the deal would be "mid-single digits" earnings per share accretive this financial year, Webjet said.
“The acquisition of DOTW continues to consolidate WebBeds' position as the clear [number two] player in the global B2B market," said Webjet managing director John Guscic.
"DOTW is highly complementary to WebBeds' existing portfolio and significantly enhances WebBeds’ existing Asia Pacific and Americas businesses, while further expanding its presence in Europe and the Middle East and Africa."
Webjet last year paid $332 million for the European B2B booking agent JacTravel, and its wholesale arm now delivers almost 40 per cent of its revenue and a third of its earnings.
The company on Monday also gave underlying earnings guidance from its existing business for "at least" $110 million this year, up from $87.4 million last year.
Webjet shares were in placed in a trading halt on Monday. At Friday's closing price of $12.91, the stock has increased in value by 12.5 per cent over the past 12 months, and delivered total shareholder returns of 14.8 per cent, versus 3.8 per cent across the ASX200.
Ord Minnett analyst John O'Shea said the deal looked like a "sensible" transaction, and in keeping with Webjet's stated strategy to grow the B2B side of its operations.
"The [consumer operation] is still an important part of the Webjet business, but in terms of future investment, the company has definitely highlighted that B2B is going to be their focus," he said.
“The company believes there’s an opportunity in that market to be a significant player and sees the growth outlook at very positive.
Mr O'Shea said that the $240 million price tag was "a reasonable size bite" for Webjet, but one the company could handle with its balance sheet and the associated equity raising.
Webjet will also give $28 million worth of new Webjet shares to DOTW's current owners, the private equity firm Gulf Capital, as part of the deal. The sale price represents 10.5 times DOTW's 2018 earnings.