Investors celebrate Despegar's new alliance

Despegar.com, the largest publicly traded online travel agency in Latin America, posted a significant rise after announcing its intention to buy its smaller rival Viajes Falabella.

Image: Instagram Despegar
Image: Instagram Despegar

The shares rose to 5.7% in Tuesday's New York operations, its highest intraday gain since December 26, after the company reported that it will pay 27 million dollars to acquire the travel unit of the Chilean retail chain Falabella. .

The Buenos Aires-based travel company seeks to build customer loyalty and is committed to increasing hotel and package sales to grow its business, despite the fact that some of its larger markets suffer from economic and monetary volatility. The shares of Despegar, which raised 332 million dollars through an initial public offering in September 2017, have lost almost half of their value since then since a collapse of the Argentine peso has shaken the stock markets.

The acquisition is good for Despegar but it is not "transformational," Itaú analysts led by Rodrigo Nistor warned in a note, adding that the institution has a neutral outlook on Falabella. The measure will increase the presence of Despegar in the Andean region since the main markets of Viajes Falabella in terms of gross reserves are Chile and Colombia. The company obtains 65% of its revenues through the package segment, which is in line with Despegar's broader strategy, Nistor added.

Viajes Falabella added around 50 million dollars in revenues and 3,500 million dollars in adjusted profits during 2018, according to a company statement.

The Andean region is also where Despegar has experienced its greatest growth in recent years, driven by more stable currencies than those of Brazil and Argentina, said Marcelo Grether, director of business development, strategy and planning for the company. Even so, the firm prioritizes growth in the region as a whole.

"We are seeing strong consolidation in these markets," Grether said by telephone. "This agreement complements everything we are doing in the region."

Despegar continues to analyze acquisition opportunities, but does not plan any in the short term, added Grether. Due to the OPI funds of 2017, the company is fully funded for this acquisition and others in the future.

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