This case study depicts the proposed merger of two startups in the industry of online listings and reservations of leisure lodging. VacationSpot.com is based in the United States of America while Rent-A-Holiday is stationed in Belgium. While both companies emerged at around the same time in 1997 and have almost the same lodging inventory, there is such a huge difference as to the post-money valuations in the ratio of more or less 9:1. This issue on the valuation brought the merger negotiation to a standstill. Should the two companies re-negotiate and what terms should each company propose?
Walter Kuemmerle and William J. Coughlin
Harvard Business Review (800334-PDF-ENG)
March 31, 2000
Case questions answered:
- What is the nature of this opportunity for the two companies?
- What is the context for Internet entrepreneurs in the United States and Europe in early 1999?
- What is the value of VacationSpot in 6/1999? What is the value of Rent-A-Holiday in 6/1999?
- Should the two companies merge? If yes, under what terms? Where should the company be headquartered? What should be the new name of the company?
- If you were Steve Murch would you keep Peter Inglebrecht and Laurent Coppieters on board/side? For how long? If yes, what type of incentives will you offer them? Be as specific as possible in your proposal of an incentive structure.
- If you were an investor in Rent-A-Holiday, what would be your concerns regarding the merger? What would you propose to the entrepreneurs in both companies to mitigate your concerns?
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VacationSpot.com & Rent-A-Holiday: Negotiating a Trans-Atlantic Merger of Start-Ups Case Answers
1. What is the nature of this opportunity for the two companies?
In the 1990s, VacationSpot.com and Rent-A-Holiday were two rapidly growing independent leisure lodging firms. Both firms would benefit from additional prospects, resources, and markets if they merged.
This acquisition will provide Rent-A-Holiday access to Avail, a reservation database management system that allows clients to make on-the-spot online reservations. Avail, a computer system, was quite advanced in 1999.
Because of their success in other internet startups and their business model is fairly like VacationSpot.com, the latter’s stakeholders, Crossover Ventures, and Madrona Group might be useful to Rent-A-Holiday.
Rent-A-Holiday is required to have a multilingual and multicultural workforce, which benefits the development of partnerships with suppliers and customers. VacationSpot.com would have access to Rent-A-online Holiday’s translation engine as a result of the merger.
The deal would benefit VacationSpot.com’s three-pronged approach because Rent-A-Holiday was the leading European competitor in their sector and VacationSpot.com’s weak point was in the European market.
2. What is the context for Internet entrepreneurs in the United States and Europe in early 1999?
The internet travel industry was the largest and fastest-growing e-commerce segment in early 1999. The potential for internet-based businesses to grow was enormous. Because there was no automated reservation system in 1999, most internet travel sites focused mainly on large chain hotels.
Early in 1999, Internet sites lacked sophisticated search tools and marketing help. When it came to finding financing, European entrepreneurs had a harder time than their American counterparts.
In Europe, the venture capital community was not as developed as it was in the United States. Because internet sites were growing more advanced and extensively utilized in 1999, online entrepreneurs discovered new markets and niches that catered to customers’ needs.
3. What is the value of VacationSpot in 6/1999? What is the value of Rent-A-Holiday in 6/1999?
The valuation of VacationSpot.com is…
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