Bellevue, Wash.-based travel giant Expedia announced on Wednesday that it is acquiring Airbnb competitor HomeAway for $3.9 billion worth of cash and stock. This represents Expedia’s largest acquisition yet.
The boards of both companies have approved the deal, which is expected to close in the first quarter of 2016 and is still subject to normal closing conditions and regulatory approval. Of the $3.9 billion, $1 billion is in cash and the remaining $2.9 billion is stock. Last time Expedia reported earnings in September, the company had $1.5 billion cash on hand.
There is a breakup fee Expedia would have to pay if the deal falls apart, but the company isn’t releasing those details quite yet.
Founded in 2005 and based in Austin, Texas, HomeAway showcases about one million vacation rental properties in 190 countries on its site and competes directly with Airbnb. Its most recent market capitalization was around $3 billion with shares trading at $32.04 at today’s closing bell, which is down 8 percent over the last year. The company IPO’d in 2011 at about $37 a share.
Expedia is paying a 19 percent per-share premium for HomeAway, which operates VRBO.com, VacationRentals.com and other properties.
The so-called “sharing economy” — led by Airbnb — has posed a serious threat to Expedia’s business, which is largely built around booking stays at traditional hotels. Interestingly, privately held Airbnb was said to be worth 50 percent more than Expedia’s market cap at a whopping $25 billion.
Expedia began listing HomeAway properties on its site as part of a partnership in 2013, but the company said earlier this year that part of its business hasn’t taken off yet.
One problem, Expedia CEO Dara Khosrowshahi explained during a call with investors on Wednesday, is that the HomeAway listings were stealing business away from Expedia’s other accommodations, but not delivering the revenue to offset the losses.
By acquiring the company, and then making HomeAway more profitable with business model changes and increased exposure from Expedia, he said they feel like they have “a combination that can work out pretty well.”
“We firmly believe there aren’t any hotel customers or vacation rental customers, just like there aren’t air customers or car rental customers,” Khosrowshahi said. “Rather there are travelers for certain occasions that require a breadth of choice, price and availability across products and across geographies.”
After the HomeAway acquisition, Expedia says it will offer 1.5 million accommodations for customers to choose from, which will boost sales for the entire network.
Today’s announcement comes after Expedia acquired Travelocity for $280 million in January and then paid $1.6 billion for Orbitz in February of this year, a deal that was completed in September after the U.S. Justice Department announced that it wouldn’t challenge the deal.
In addition, Expedia has also gobbled up international competitors to expand into new geographies and markets. It acquired Australia’s Wotif.com in July 2014, took a majority stake in its joint venture with AirAsia in February and invested $270 million in Latin America’s Decolar.com in March.
These deals are closing as Expedia moves from its headquarters from Bellevue to a new Seattle waterfront campus in 2019, taking over the former Amgen campus along Elliott Bay.
HomeAway, meanwhile, recently acquired Seattle-based vacation rental startup Dwellable for $18 million. The company, which raised more than $500 million, today posted $130.7 million in revenue and $10.4 million in profit for the most recent quarter. The platform now counts 1.2 million paid listings, which is up 15.5 percent from this time last year.
HomeAway also today announced a major business model overhaul as it works to make more money off the bookings it facilitates. The company will begin charging a new “travelers fee” that it estimates will average about 6 percent on top of rental rates — though it isn’t releasing all the details on that front yet.
HomeAway CEO Brian Sharples acknowledged during the conference call that this is going to be a challenging transition and some property owners who use their platform to rent out rooms won’t like the change. But he said he thinks the increased business they’ll see because of Expedia will be enough to keep people happy.
“We’re going to be able to make these changes under the air cover of the fact that we now have a greatly expanded distribution network with Expedia,” he said.”We deliver the most bookings today. You turbocharge that with the Expedia family and this is the place where everyone is going to have to be. I think longterm, even people in urban markets are going to be on this channel. It’s just too big for people who are in this business to ignore.”
Shares of Expedia are up more than 3 percent in after-hours trading and up nearly 58 percent in the past year.