A Scottish start-up has been snapped up by China’s largest travel agency for £1.4 billion hours after the chancellor promised £400 million to help prevent Britain’s successful digital companies from being taken over by larger rivals.
Skyscanner, a flight-booking website based in Edinburgh, is being sold to Ctrip. Skyscanner’s management will continue to run the company after the sale goes through at the end of the year and its bosses are in line for multimillion-pound payouts.
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Many of the 700 staff of the unicorn — the name given to a tech group that is worth more than $1 billion — will also benefit from the company share scheme while its biggest venture capital investors stand to make a return of up to 50 times their investment at 300 pound loan.
Ctrip will use Skyscanner’s technology to grab a bigger part of China’s $215 billion overseas travel market. The website serves 60 million users and is available in more than 30 languages.
Skyscanner had reportedly been exploring a sale or a flotation. The company was valued at £1.2 billion in January, when it raised £128 million from investors that included Baillie Gifford, Artemis, Malaysia’s sovereign fund, Khazanah Nasional, and Yahoo Japan.
The biggest winners from the sale are Scottish Equity Partners, the venture capital group, which backed the company with £2.5 million in 2007 for a 40 per cent stake, and has put in £9 million altogether. SEP’s holding puts it in line to receive £420 million, 47 times its investment.
Backers also include Sequoia, a Silicon Valley venture capitalist that has invested in Google, Apple and Facebook.
Skyscanner was set up in 2001 after co-founder Gareth Williams became frustrated trying to find cheap flights to ski resorts. He started tinkering with an Excel spreadsheet and doodling ideas with university friends Bonamy Grimes and Barry Smith in a pub. That led to the development of a site that enables users to compare prices with other travel services, including Opodo and Expedia, when searching for flights, hotels and car hire.
The company operates in a competitive market and has invested in artificial intelligence and voice recognition so that it can provide options in response to spoken requests.
Hugh Campbell, of GP Bullhound, an investment bank, said: “What sets it apart is how they’ve really invested in the technology infrastructure — the ‘plumbing’ that connects everything behind the scenes to make their searches work. They’re definitely the best in the world at that.”
Ctrip, which is part-owned by Baidu, China’s equivalent of Google, and is listed on Nasdaq, sells flights, rail tickets, hotels and package tours.
According to latest filings, Mr Williams holds about 1.4 million ordinary shares in Skyscanner, and Mr Grimes and Mr Smith more than 1 million shares and 400,000 shares.
The offer will mainly consist of cash, with the rest in Ctrip shares and loan notes and adds to the $191 billion of Chinese acquisitions announced in the first nine months of the year.
Other British technology groups sold to overseas companies include DeepMind and SwiftKey, that are now owned by Google and Microsoft.
Gerard Grech, chief executive, of Tech City, a consultancy, said: “If the chancellor wants to see fewer companies snapped up by overseas companies, there needs to be a continued shift, towards optimising the best conditions possible for entrepreneurs to build great businesses and go all the way.”
Idea took off after meeting in the pub
2001 After discussing the idea in the pub, Gareth Williams, Barry Smith and Bonamy Grimes start working on a software programme that would let them identify cheap flights to ski destinations
2002 First version of the Skyscanner product released
2005 All three founders quit their day jobs to work on Skyscanner full time
2007 Scottish Equity Partners becomes the first external investor, paying £2.5 million for a stake believed to be about 40 per cent
2011 Opens a Singapore office and buys Zoombu, a UK-based travel aggregator, for an undisclosed sum
2012 First office in China as it opens premises in Beijing
2013 Sequoia Capital invests an undisclosed amount, thought to be worth $100 million and giving it a stake of 11 per cent, with the deal valuing Skyscanner at $800 million. Buys Fogg, a hotel search company based in Barcelona, to broaden its offering beyond flights. A base in the United States, in Miami, is opened
2014 Acquires Youbibi, a Chinese travel app, and Distinction, a mobile app developer in Hungary
2016 January Raises £128 million from five new investors — Baillie Gifford, Artemis, Yahoo Japan, Vitruvian Partners and Khazanah Nasional Berhad, a Malaysian government strategic investment fund — with the deal valuing Skyscanner at more than $1 billion
2016 November Agrees £1.4 billion sale to Ctrip, a Chinese travel group
Rare? Some other unicorns
Farfetch ($1 billion) This Anglo-Portuguese fashion website works with partner boutiques on a commission-based model and accounts for about 30 per cent of their sales. It isn’t profitable yet
Transferwise ($1 billion) The peer-to-peer money transfer service has more than 1 million customers, sending more than £800 million a month. It launched for individuals but has made steady inroads into serving businesses. It also remains loss-making
Shazam ($1 billion) It’s the app that’s had more than a billion downloads and can tell you the name of any snippet of music that’s bugging you. It became profitable this year
Funding Circle ($1 billion) The debt crowdfunding platform lets people lend to small creditworthy businesses — investors own the loan contract between themselves and the business and earn interest on the repayments. It’s another loss-maker
Deliveroo ($1 billion) Its delivery cyclists are a common sight, delivering posh burgers and pizzas from restaurants to homes. Revenues have grown fast but some analysts say that food delivery businesses are donkeys, not unicorns
Analysis
Cashing in on hunger for the road more travelled
The new Chinese middle class has a seemingly insatiable appetite for travel, experimenting with trips to semi-autonomous Hong Kong and Macau before splashing out on expensive long-haul packages (Mark Bridge writes).
Even lower-income workers spend more than half their disposable income on travel apparently and Bloomberg Intelligence estimated recently that Ctrip dealt with almost 70 per cent of Chinese online travel transactions.
Busloads of Chinese tourists regularly decamp to photograph suburban streets at Kidlington, north of Oxford. Apparently they reckon it’s a better insight into Britain than any castle or cathedral.
About 120 million Chinese ventured overseas last year, up 12 per cent on the year and double the figure for 2010, according to the country’s Tourism Research Institute. Overseas tourism has increased even as the Chinese economy has slowed — and so has the profit for intermediaries. Goldman Sachs expects China to spend $450 billion on overseas travel by 2025, nearly double the $250 billion spent last year. Chinese tourists spend an average of €5,400 during a stay in France, according to Le Figaro, and almost half of the budget is reserved for shopping.
The favourite long-haul destinations for Chinese tourists are the US, France and Germany, where one hapless Mandarin-speaking tourist found himself stranded in a refugee centre this summer when he tried to report a stolen wallet. Britain takes tenth spot.
Ctrip is determined to be the company best placed to gain from this wanderlust and it takes a scientific approach fitting well with Skyscanner’s skill in analytics and algorithms, fostered by its computer science graduate founders.
Skyscanner’s work on voice recognition systems and artificial intelligence could be game-changers in a market where almost 20 per cent of Chinese travellers use voice search to access services.
Ctrip, whose main rivals are Priceline, which has a stake in the Chinese company, Expedia and TripAdvisor, will gain access to new European traveller markets but, more important, bring the tech unicorn’s insights and infrastructure to bear closer to home.
It is also part of a bigger spending spree, including the purchase of three US tour operators that cater to Chinese tourists. After posting a tenfold increase in profits in March, earnings have fallen recently because of its acquisition activity.
