NEW YORK  - Buyouts are becoming the new activism at Elliott Management. Months after putting Travelport Worldwide in play, Paul Singer’s hedge fund is joining a $4.4 billion buyout of the company. Public investors don’t value the travel industry e-commerce also-ran, and getting margins close to sector leader Amadeus could reap big gains.

Elliott indicated it would agitate for a sale, and might participate in one, when it first disclosed a nearly 12 percent stake in Travelport back in March. That gave the stock an immediate 17 percent pop. But the shares later fell back as no other buyers emerged and the company’s lackluster operations reasserted themselves. Elliott and partner Siris Capital are paying a dollar less than where the shares were the day after the hedge fund first declared its interest nine months ago.

The weakness is understandable. Analysts expect Travelport to grow revenue by less than 5 percent next year and post an operating margin of just under 9 percent, according to I/B/E/S estimates from Refinitiv, both less than half the levels of industry leader Amadeus. The company lags in higher-margin IT services, and its market share is potentially vulnerable if airlines can persuade more travelers to book their flights directly.

Elliott, meanwhile, has honed its expertise in software since pushing Novell to sell itself nearly a decade ago. And Singer has made buyouts a new line of business through Evergreen Coast Capital, a Menlo Park, California subsidiary led by Jesse Cohn. The firm acquired network software firm Gigamon for $1.6 billion last year and last month teamed up with Veritas Capital to buy online medical billing firm Athenahealth for $5.7 billion.

Assume Elliott and Siris can soup up Travelport’s revenue growth to 6 percent, which is what analysts project for Amadeus in 2020, and lift its margin to 15 percent. That would deliver a nearly three-quarters increase in operating profit. Juice that up with private-equity style leverage, and the returns could be even more generous. It’s riskier than traditional activism, but it has the virtue of putting Elliott’s money where its mouth is.

On Twitter https://twitter.com/tombuerkle

 

CONTEXT NEWS

- Travelport Worldwide said on Dec. 10 it had agreed to be taken private by Siris Capital and the private-equity arm of Elliott Management in an all-cash buyout valuing the travel technology company at $4.4 billion.

- Siris and Elliott’s Evergreen Coast Capital subsidiary will pay $15.75 in cash, a 2.3 percent premium to Travelport’s closing price on Dec. 7. The company’s shares were up more than 2 percent at $15.78 shortly before the market close.

- For previous columns by the author, Reuters customers can click on BUERKLE/

- SIGN UP FOR BREAKINGVIEWS EMAIL ALERTS http://bit.ly/BVsubscribe

 

(Editing by John Foley and Amanda Gomez) ((thomas.buerkle@thomsonreuters.com; Reuters Messaging: thomas.buerkle.thomsonreuters.com@reuters.net))