3 reasons Webjet Limited is a likely takeover target

There are a number of reasons why Webjet Limited (ASX:WEB) could be in the sights of a cashed up competitor

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As billion dollar mining investments fade into the past and the housing boom begins to show signs of peaking, investors who invest with one eye on powerful trends or thematics are searching for the next area of long-term growth.

Tourism, leisure and travel shapes as a strong area for the Australian economy as the Aussie dollar weakens relative to our major international travel destinations, while at the same time, the unemployment rate improves ahead of expectations.

Online travel booking company Webjet Limited (ASX: WEB) is a strong beneficiary of these themes, and the return to growth of its business across a number of areas has caught the eye of many. There are a number of compelling reasons why Webjet could find itself in the takeover sights of a larger company.

Mobile advantage

Webjet saw the winds of change earlier than most domestic rivals and began heavy investment in developing a strong mobile offering early on. While this investment negatively impacted earnings in earlier results, the most recent result has totally vindicated the strategy.

The company reported $68 million worth of mobile bookings, compared to under $30 million the previous year. Importantly, this rate of growth far outstripped the rate of mobile adoption in the broader market for similar offerings.

Most of the large travel sites and portals in the world began life as desktop based operations and have been struggling to adapt to life on a mobile device. The key learnings from a successful innovator could be key to an acquisition mandate, especially if they can roll out the acquired technology across a much wider market.

Investment dollars

Former ASX listed company Wotif.com accepted a $700 million-plus takeover offer from global travel titan Expedia recently. While the brand was still strong, transaction volumes were falling in the face of lowered marketing and advertising investment from the company as it struggled to prioritise its spending.

Since the acquisition, Wotif "mastheads" have returned to the radio airwaves, newspaper advertising and television in a meaningful way, courtesy of Expedia's deep pockets.

The exercise shows that there is strong brand familiarity in the first movers in the space, and that if this is supplemented by advertising spend, that brand familiarity can be converted to revenues. However, as a relatively small company, Webjet's budget is limited in this regard, and would be miniscule compared to larger competitors. An investment by a larger company could see the brand reach expand significantly if supported by a strong advertising campaign during key times.

Taking out the competition

Of course, one of the oldest reasons for being taken over could come into play for Webjet. Analysts question the online strategy of large rival, Flight Centre Travel Group Ltd (ASX: FLT) and whether it is allowing smaller, more nimble players like Webjet to steal overall market share as more travel bookings move online.

Graham Turner's Flight Centre has never been afraid of acquisitions, and taking over Webjet and applying the strengths of the smaller business to the huge network that Flight Centre operates could certainly be an attractive option to consider. Other potential acquisitors could be the host of large global travel and accommodation companies looking for a solid foothold in Australia, including Priceline, Orbitz, TripAdvisor and China's CTrip.com.

Motley Fool contributor Ry Padarath has no position in any stocks mentioned. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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