Will Google-ITA deal sink Kayak public offering?

Online travel information provider seeks to raise $50M, but faces potentially huge risk

Kayak Software Corp., a U.S.-based online travel-information service provider, has filed for an initial public offering to raise up to $50 million in working capital.

The IPO is being underwritten by Morgan Stanley, Deutsche Bank AG and some other banks. Kayak, founded in 2004 and based in Norwalk, Conn., provides a service that allows travel shoppers to search for flights, accommodations and vacation packages on numerous travel sites, including Orbitz and Expedia. It has 140 employees and local websites in 15 countries.

According to Kayak's IPO, "online travel represents the largest category of e-commerce," generating $216 billion in revenue in 2009. Through the first three quarters of this year, Kayak had $128.3 million in revenue, up 48 percent from the previous year.

Which means we're talking about a growing company in a growing sector. So far, so good.

Unfortunately, there's a chance Kayak may end up competing with a little start-up called Google, which announced last summer it will buy flight information provider ITA Software for $700 million. It's not a done deal yet, primarily because the acquisition is being opposed by most of the online travel industry. The U.S. Department of Justice currently is assessing whether there are any anti-trust concerns.

Whether the deal is allowed affects Kayak in two ways. One, of course, is that the company suddenly would be competing with Google. The other is that Kayak licenses faring engine software from ITA. In fact, ITA "provided approximately 42% of our overall airfare query results for the nine months ended September 30, 2010," according to Kayak's filing. And that contract expires at the end of 2013.

"A loss of access to ITA’s software or an adverse change in our costs associated with use of the ITA software, could have a significant negative effect on the comprehensiveness of our query results and on our revenues and operating results," Kayak said in its S-1.

Companies filing to go public have to lay out any potential risks to investors. Some are boilerplate, but this strikes me as a genuine danger to Kayak. It'll be interesting to see if the IPO -- which doesn't have any share price or offering date attached to it -- goes forward or is delayed.

Chris Nerney writes about the business side of technology market strategies and trends, legal issues, leadership changes, mergers, venture capital, IPOs and technology stocks. Follow him on Twitter @ChrisNerney.

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