Case 29: TRX, Inc.

:
Initial Public Offering

Group members:
Le Tran Nguyen Nhung – MBA06022
Nguyen Thi Mai Phuong – MBA06024
Nguyen Thi Tuong Van – MBA06044
 I. Case Overview
 TRx: Managing travel and data processing activities for its
client
 Found 1999
 CEO: Trip Davis
 Company history:
 Davis found a Web development technology-integration company
 Corporating with Worldtravel Partners (WTP)
 1999: Davis renamed the venture TRX (transaction)
 18 Feb, 2000: TRX filed to do an IPO but the dot-com buddle burst
 I. Case Overview
 The company generates a lot of revenue but less profit and
CEO wanted to achieve a strategic recapitalization of TRx
 2004: Davis determined that it was time to raise capital to
fund the future growth of the company
• There were three possible capital raising options:
• IPO-which is defined as the first sale of stock by a company to
the public
• Private placement of equity
• Private placement of debt
• Main issue: go ahead with IPO at the lower price of $9/share
• Withdraw the IPO and wait for a better time
 II. Questions & Answers
1. In general, what attributes make a company a good
candidate for an IPO?
The company should have a solid history. Investors will expect
the company to have long term sustainability since most
investors will be looking to hold the stock long term. steady
history of earnings growth through financial data prove
experiencing high growth.

A disciplined and experienced management team. It allowed

the company to increase its research coverage and reach a
larger inventor audition. This is the most important.
 II. Questions & Answers
1. In general, what attributes make a company a good
candidate for an IPO? (cont.)

 The company should have a good business model and

defensible competitive position. A good business plan will
allow the company to deal with adverse market conditions
and allow the potential investors to see where the company is
headed in the future

 The company should be in a stable industry that is on the rise

and not in an industry that is becoming obsolete
 II. Questions & Answers
2. How does TRX compare on these dimensions?

A solid history: TRX have been an independent corporation

since 1999. It spun off another company, WTP, which is a major
corporate travel agency in Atlanta. Moreover, they have revenue
growth rate of 79.51% over the past 5 years. However TRX also
has yet to post a positive net income
 II. Questions & Answers
2. How does TRX compare on these dimensions? (cont.)

A disciplined and experienced management team: CEO

Trip Davis has worked one year in the new ventures group of a
large firm before founding a Web development technology-
integration company for travel industry in San Francisco in 1995.
Thomas Weisel was known for its aggressive sales and trading
effort, Legg Mason and SunTrust had a wide investor client base
in the central and southern US

A stable industry: Travel was one of the largest global

industries, totaling nearly $400 billion from annual airline,
lodging, car, cruise, and vacation-package bookings in 2004.
 II. Questions & Answers
2. How does TRX compare on these dimensions? (cont.)

•A good business model: Their business plan is very solid. As

a behind the scenes travel processing service company, TRX
update recent trend of consumers and businesses adopting the
internet as a means to make their travel arrangements. TRX’s
strength was it ability to automate and engineer travel and travel-
related processes. TRX could achieve economies of scale by
aggregating transaction volume from its large clients. In addition,
they established long-term partnerships with the clients.
 II. Questions & Answers
3. How favorable is the market climate for the TRX IPO?

The fact that the pricing for technology IPOs saw decreases of
-17.6% and -23.8% had been trending down from July to August
in the file price to offer price. A recovery in technology IPO
pricings in the months of September and October led TRX to a
schedule a tentative March 2005 IPO.
The main trend in travel industry
TRX can provice all cust, not just special cust
TRX want to be independence

The US technology IPO backlog, which was a measure of

pending supply. When IPO giants such as Google had gone
public => The hope was that firming market conditions would
facilitate an IPO issue in the second half of 2005
 II. Questions & Answers
4. How does the strategic repositioning of the company and
the use of the IPO as an exit for minority shareholders affect
the attractiveness of the IPO?
•Although over half of TRX’s revenue coming from customer
care, the company’s long – term strategy was to focus on the
higher – margin data – transaction and – intergration sectors. In
fact, it had gradually shifted away from customer care to
transaction processing and data intergration. With an increased
concentration on higher – margin business, some of TRX’s
operational uncertainty would be reduced, and the valuation of
the company would become more favorable.
 II. Questions & Answers
4. How does the strategic repositioning of the company and
the use of the IPO as an exit for minority shareholders affect
the attractiveness of the IPO? (Cont.)
•When the relationships with Hogg Robinson and Sabre
Investments that were TRX’s two minority shareholders had
become problematic, the company considered the IPO as an
important milestone for TRX because it offered liquidity for
exiting minority shareholders, which would ultimately lead to a
better alignment of its stakeholders. However, if the final IPO
offer price need to be lowered than $11, which was the price the
two minority shareholders had paid for their shares, their lack of
agreement to proceed at the lower price could potentially block
the IPO.
 II. Questions & Answers
5. Estimate a preliminary file range shares for TRX’s.
Unit: ($ in millions)
Management Plan CSFB Research
EV/EBITDA* 19.9 19.9
Adjusted EBITDA 11 10.6
EV (Enterprise Value) 218.90 210.94
Outstanding Debt 27.51 27.51
Equity Value 191.39 183.43
Shares Outstanding 12.46 12.46
Price per Share 15.36 14.72
Discount Price (15%) 13.05 12.51

*Mean of EV/EBITDA of comparable company analysis

 II. Questions & Answers
6. Given the situation Davis faced in September 2005, what
would you recommend that he do with respect to the
offering?
•Although the offer price was expected to be lowered to $9 per
share to secure enough investors, David could continued
implementing the IPO as planned to raise capital in order to
support growth and accelerate the transition away from low-
margin customer care service. After the IPO, the company’s
EBITDA was estimated to grow significantly and it could gain
positive earnings in 2006 and beyond. Strong cash-flow
generation, aggressive working-capital management, and rapid
revenue growth would make TRX be more adopting to higher-
margin services, and then increasing its share price in the future.
Thank You !