Business Question
UVA-F-1568 Rev. Aug. 20, 2012
This case was prepared by Susan Chaplinsky, Professor of Business Administration, Kensei Morita (MBA ’08), and
Xing Zeng (MBA ’08). It was written as a basis for class discussion rather than to illustrate effective or ineffective
handling of an administrative situation. Copyright 2008 by the University of Virginia Darden School Foundation,
Charlottesville, VA. All rights reserved. To order copies, send an e-mail to sales@dardenbusinesspublishing.com.
No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in
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of the Darden School Foundation.
TRX, INC.: INITIAL PUBLIC OFFERING
September 26, 2005, was not a normal Monday afternoon for Trip Davis, CEO of TRX,
Inc. Davis sat in his Atlanta office waiting to return a call from his investment bankers at Credit
Suisse First Boston (CSFB). Just back from a marathon two-and-half-week road show across the
country and Europe to market the initial public offering (IPO) of his company, Davis had been in
touch with his bankers on a daily basis. Although Davis and his team had prepared extensively to
help investors understand TRX’s business model and promising growth potential, many investors
still seemed reluctant to purchase shares. The first few days, the bankers told him not to worry—
that the book never came together until the end of the road show. After that, indications of
interest began to come in, but at prices below the original file range of $11 to $13 per share. The
last call from his bankers earlier that day brought news that the book remained “very thin” even
at a lowered price of $9 per share.
This was Davis’s second go-round trying to take TRX public. His first attempt in 2000
was cancelled due to unfavorable market conditions related to the dot-com collapse. Since then,
TRX had experienced fast growth under Davis’s management and had become a major data-
transaction and -integration company for the travel industry. Davis knew the company needed to
raise capital to support future growth and, more importantly, to recapitalize TRX’s current
ownership structure. When TRX’s first IPO failed, the firm had turned to strategic investors to
raise capital, but these investors now wished to exit. While the IPO could provide them liquidity,
Davis knew the investors would be loath to agree to an IPO price of less than $11 per share, the
price they had paid for TRX’s shares. As the four o’clock hour approached, the bankers waited
anxiously in New York for his decision.
Company History
After graduating from business school in 1994, Davis had worked for one year in the new
ventures group of a large firm before founding a Web development and technology-integration
company for the travel industry in San Francisco in July 1995. “When your name is Trip, I guess
it’s inevitable you end up in the travel business,” he said. That company was acquired by iXL
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Enterprises, Inc., a rapidly growing Internet services firm, in February 1998, and Davis joined
iXL to run its travel practice business.
Business was booming. Clients such as Delta, Virgin Atlantic, Starwood, and Budget all
needed Web strategy and technology-integration services. One of his clients, WorldTravel
Partners (WTP), was a major corporate travel agency in Atlanta. With sales topping $2 billion in
1999, WTP was the third-largest travel agency behind American Express and Carlson Wagonlit.
In 1998 and 1999, Davis met regularly with WTP’s CEO and other executives about their
technology strategy. WTP used online booking and processing automation technologies to
generate better profit margins than its competitors. These technology assets were housed in a
subsidiary it created called WorldTravel Technologies, LLC (WTT). As WTP grew, competitors
took note of the technology and inquired about using it for their own operations. The
competitors, however, expressed one concern: They were reluctant to do business directly with
WTP.
Davis and the WTP executives created a plan to spin off the WTT entity. The spin-off
was completed in December 1999, and Davis was named CEO of the new company. He renamed
the venture TRX, an abbreviation for “transaction,” and set out to establish the company’s
mission and culture now that it was independent of WTP.
At the time of the spin-off in 1999, TRX’s major investors included BCD Technology, a
Dutch holding company, which was also the majority owner of WTP. BCD was owned by John
Fentener van Vlissingen, the scion of a wealthy Dutch family.1 Dutch investment tradition called
for a long-term perspective and conservative financing, principles van Vlissingen embraced. In
addition, TRX sold a minority ownership stake to Hogg Robinson Holdings, a large travel
company based in the United Kingdom, in order to establish strategic joint ventures in Europe.
In the “go-go” days of the late 1990s, eight days after being appointed CEO of TRX,
Davis held a meeting to discuss going public. On February 18, 2000, TRX filed to do an IPO
with Goldman Sachs as lead manager. But those plans came to a halt shortly thereafter when the
dot-com bubble burst, forcing TRX to abandon its IPO.
Having withdrawn the IPO, Davis decided in the spring of 2001 to seek $20 million
through a private placement to support the firm’s growth. That process, which took place over
the ensuing months, had identified four investors by August 2001. The four were narrowed to
two investors—a strategic buyer, Sabre Investments, Inc. (Sabre), and a financial buyer, General
Atlantic Capital Partners. Sabre, a travel technology company, was a spin-off of American
Airlines. It was attractive because of its strong data-transaction technology serving the travel
industry and its ownership of Travelocity.com, a major online travel business. With Sabre being
1 Van Vlissingen’s personal net worth was estimated by Forbes at $1.6 billion in 2004. The Fentener van
Vlissingen family owned SHV Holdings, N.V., the largest family-owned business in the Netherlands. For
background on the family and John Fentener van Vlissingen, see “Family Portrait: The Fentener van Vlissingens’
Sense of Duty,” Elseviers magazine, December 16, 2006; and “Dutch Billionaire Keeps Ideas Coming: Internet
Product May Follow Travel Acquisitions,” Rachel Tobin Ramos, Atlanta Business Chronicle, May 5, 2006.
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a minority shareholder in TRX, Davis hoped to realize synergies from its data-transaction
technology and to pursue business opportunities with Travelocity. General Atlantic Capital
Partners, the other strong candidate, focused on travel technology and the Asian market.
Although the events of September 11 caused some delay, TRX reached agreement to issue a
$15 million convertible promissory note to Sabre with a conversion price of $11 per share in
November 2001.2 The remaining $5 million of funding was provided by BCD Technology and
Hogg Robinson at the same terms.
Company Overview
Davis described TRX as a “behind the scenes” travel-processing service company. TRX
focused on managing travel- and data-processing activities for its clients so they could
concentrate on their own core businesses. Based on his experience, Davis knew each step in the
value chain of the travel industry used a different process, and he used this knowledge to identify
business opportunities. TRX targeted clients with significant transaction volume in four areas:
travel agencies (traditional and online), travel suppliers, large corporations, and credit-card
issuers. In 2004, TRX served more than 150 clients on a global basis, with Expedia, Inc., its
largest single account, accounting for 53% of its 2004 revenue. TRX provided technology
applications that automated and streamlined the entire travel-processing life cycle, including
booking, ticketing, settlement (payment), and reporting. Exhibit 1 describes some of these
services.
Travel scheduling was a particularly data-intensive process, and suppliers, agencies, and
credit-card companies all used different data structures and hardware and software systems. TRX
took data feeds from banks, travel agencies, and travel suppliers and combined and normalized
the data to provide clients with standard formats and enhanced content. The transaction
processing and data integration associated with travel transactions could also be complex; as
many as 500 distinct data fields could be required for a single booking by a single traveler. When
a travel reservation was booked online, checked for quality, ticketed electronically, subsequently
changed or modified by the traveler, and then reported to the client through TRX’s products or
services, TRX was paid a fee based on each of these processing services.3
TRX’s strength was its ability to automate and engineer travel and travel-related
processes. Because of the high transaction volume, TRX could achieve economies of scale by
aggregating transaction volume from its large clients and passing these savings on to its clients.
In many companies, travel was the second-largest expense after personnel. Most of TRX’s
clients were developed through long-term partnerships. An important aspect of keeping these
2 The convertible promissory note initially paid interest of 7% per annum (later increased to 11%) on a cash or
accrued basis. The note would mature in November 2006 at which point investors either would be repaid
$20 million or convert the note into common shares at $11 per share. The terms of such securities typically allowed
for an event such as an IPO to trigger automatic conversion of the note into common shares. 3 TRX had an arrangement with most of its clients to pay one to three months in advance of performing the
services. This form of supplier financing was helpful in reducing the firm’s working capital requirements.
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relationships was TRX’s independence, which provided clients with unbiased and confidential
processing capabilities and permitted nonexclusionary business relationships. In Davis’s view,
TRX’s independence was a major factor behind the company’s success, “We want to be the
Switzerland of travel and do business with everyone,” he said.
TRX generated revenue primarily from three service offerings: transaction processing,
data integration, and customer care. Customer care required that the company staff and maintain
call centers to respond directly to customer inquiries. Although TRX generated more than 50%
of its revenue from customer care in 2000, Davis’s long-term strategy was to focus on the
higher-margin data-transaction and -integration sectors. TRX had gradually shifted away from
customer care to transaction processing and data integration. By 2004, transaction processing and
data integration accounted for 70% of total revenues, while customer care had fallen to 30%. His
intent was to exit the customer-care segment entirely, but this would likely take several more
years to accomplish.
By 2004, TRX was processing nearly 73.5 million travel transactions a year, up from
9.3 million in 1999. From a revenue perspective, TRX generated $113.4 million in total revenues
in 2004 up from $63.2 million in 2000, and was ahead of the previous year’s pace for the first six
months of 2005. Despite the strong growth in revenue, the company still had not reported
positive net income. Exhibits 2 and 3 present selected financial and balance sheet information.
Industry Overview
In 2004, travel was one of the largest global industries, totaling nearly $400 billion from
annual airline, lodging, car, cruise, and vacation-package bookings. The travel-service industry
originated with the development of local travel agencies to serve the corporate- and leisure-travel
industry. These travel agencies were designed to assist clients in arranging corporate or leisure
travel on a regular basis. By using a travel agency, a client could significantly reduce the cost
and time associated with booking flights, rental vehicles, and hotels through multiple sources.
The growth in online access and low-cost carriers increased price transparency and
competition, which drove prices down. The overall impact on the industry was a decrease in the
cost per mile travelers paid. The number of travel agencies decreased significantly because
travelers could essentially act as their own travel agents. The resulting consolidation
concentrated a growing share of travel purchasing with a short list of large agencies. As a result,
there was an increased willingness to outsource noncore “back office” business functions.
Reliable reservation-processing and data management were essential for good service; but they
were not functions that directly mattered to the end customer—provided they were handled well.
Thus, companies such as TRX, which specialized in transaction-processing and data
management, were poised to serve this new market.
As the Internet and electronic retailing exploded in the 1990s, the travel industry focused
its efforts on Web-based sales. Such companies as Priceline, Expedia, and Travelocity thrived
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with Web sites that provided one-stop travel shopping without the need for an agent as an
intermediary. The rapid growth of the Internet enabled clients to make travel arrangements
easily, based on price, availability, schedule compatibility, and amenities.
The fortunes of TRX were tied to the overall health of the travel industry. Recently, the
travel industry had experienced some serious headwinds. Following the terrorist attacks of
September 11, 2001, passenger air travel declined in 2001 and further still in 2002. Air travel
began to recover in 2003, but 2004 was the first year in which revenue passenger ton-miles had
exceeded the level reached in 2000.4 Subsequent terrorist attacks in Madrid, London, and
elsewhere kept travel concerns in the public eye. In addition, oil prices had roughly doubled from
$28 per barrel in 2000 to $55 per barrel in the summer of 2005. Rising fuel costs, which
accompanied increased oil prices, had caused airlines to retrench certain routes and otherwise
increased the cost of air travel.
IPO in 2005
By the fall of 2004, TRX was generating double-digit top-line revenue growth, but the
company was still losing money. Davis knew that the company needed to grow further and to
continue the shift away from the low-margin customer-care business.
In the meantime, the relationships with Hogg Robinson and Sabre Investments, TRX’s
two minority shareholders, had become problematic. Davis chose to raise capital from Sabre in
2001 mainly for the credibility he thought it would bring in the marketplace and for the business
opportunity with Travelocity. Disappointingly, few synergies had materialized and Travelocity
never became a client of TRX. In retrospect, Davis had come to believe that the Sabre
investment had been a mistake. “I’d become frustrated by their lack of urgency in improving
TRX’s core business, no business with Travelocity had ever come through, and their agenda was
different from TRX’s.” Sabre focused on utilizing global distribution system (GDS) technology
with ties to major airlines.5 In an industry with relatively few players, Sabre’s stake increasingly
undermined TRX’s goal to be seen as a company independent from any major travel agency or
airline. For its part, Sabre had also reached the decision that it was in its best interest to sever the
relationship with TRX. Hogg Robinson’s change of circumstance was more straightforward. It
had been bought by a private-equity firm in 2000, and the investors wanted to exit the investment
in TRX. Meanwhile, van Vlissingen, TRX’s largest shareholder, took a longer-term view and
urged Davis to plan over a three-year horizon, asking him, “What do we want to do?”
Davis had determined that TRX would need to raise capital to fund future growth, and at
the same time, he wanted to achieve a strategic recapitalization of TRX. Davis believed there
were three possible capital-raising options: (1) an IPO, (2) a private placement of equity, or (3) a
4 U.S. Department of Transportation, Bureau of Transportation Statistics. 5 Global distribution systems were computer reservations systems used to store and retrieve information and
conduct transactions related to air travel. Originally designed and operated by airlines, they were later extended for
use by travel agents and consumers through Internet gateways.
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private placement of debt. To Davis, the IPO seemed the best option. An IPO would be an
important milestone for TRX; the offering would provide equity capital and facilitate future
access to the public markets. In addition, it offered liquidity for exiting minority shareholders,
which would ultimately lead to a better alignment of his stakeholders.
In October 2004, Davis and TRX management met with investment banks. He selected
the technology banking team from Credit Suisse First Boston (CFSB) to lead the offering. Davis
and major shareholders from BCD Technology had developed a close relationship with CSFB
since TRX’s incorporation in 1999, and both parties were familiar with each other. More
importantly, CSFB had strong analyst coverage in the online travel and data-transaction sectors,
which Davis believed would help investors understand TRX’s business model.
Three co-managers were also selected to assist in the public offering: Thomas Weisel
Partners LLC; Legg Mason Wood Walker, Incorporated; and SunTrust Capital Markets, Inc.
Choosing a co-underwriting team was important because it allowed the company to increase its
research coverage and reach a larger investor audience. Ideally, the underwriting banks should
bring complementary skills and a diversified investor client base. In this case, each bank brought
a unique set of competencies—Thomas Weisel was known for its aggressive sales and trading
effort, while Legg Mason and SunTrust had a wide investor client base in the central and
southern United States.
While Davis was pleased to have a strong team on board, CSFB’s research reported a
choppy market for IPOs in 2004. The NASDAQ market had trended down in 2004, reaching a
low in August 2004 before making a strong recovery in the final two quarters of the year
(Exhibit 4). These broader market conditions were mirrored in the terms of IPOs. For two
consecutive months from July to August 2004, pricing was poor as technology IPOs experienced
a –17.6% and –23.8% decline in the file price to offer price in those months (Exhibit 5). In
September and October 2004, however, the pricing environment improved as the IPOs issued in
July and August traded up (“offer to current price”). With an improving climate, Davis and
CSFB made tentative plans for an IPO filing in March 2005.
Following a strong fourth quarter in 2004, the U.S. technology IPO market experienced a
difficult start to 2005, causing Davis and TRX to push back the company’s IPO filing. By May,
the NASDAQ began to rebound. Further, the U.S. technology IPO backlog remained flat in the
range of $3.7 billion to $4.5 billion (Exhibit 6). The backlog, which was a measure of pending
supply, was half the $9 billion to $10 billion of a year ago, when IPO giants such as Google
(with $1.9 billion in proceeds) had gone public. The hope was that firming market conditions
would facilitate an IPO issue in the second half of 2005.
With the expectation of better market conditions ahead, Davis decided to officially start
the IPO process. On May 9, 2005, TRX filed an S-1 registration statement with the U.S.
Securities and Exchange Commission (SEC) for a proposed IPO of 6.8 million shares of
common stock. TRX agreed to sell 3.4 million primary shares; the remaining 3.4 million shares
were secondary shares. TRX would not receive any proceeds from the sale of secondary shares.
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Those proceeds would go instead to the selling shareholders, Hogg Robinson and Sabre, which
were selling 2.131 million and 1.239 million shares to the public, respectively.6 Exhibit 7
provides information on the principal and selling shareholders.
Proposed Filing Range
In July 2005, Davis met with CSFB to review market conditions and to prepare for the
road show. His bankers informed him that market conditions remained soft. The conversion of
road show meetings into orders had been relatively low of late due to the weak performance of
tech IPOs in early 2005. It was important, therefore, the bankers told him, that the IPO be
reasonably priced and that he be well prepared for the road show.
CSFB had prepared a valuation of the file price range by comparing TRX to comparable
publicly traded companies. Absent a perfectly comparable company, CSFB expected investors to
benchmark TRX to four key sectors: online travel, payment processing, travel distribution, and
corporate travel (Exhibit 8). CSFB believed online travel companies such as Priceline and
eBookers had growth driven by similar trends and had proven track records with investors. But
their business models were not directly comparable to TRX because their businesses were less
capital-intensive. Payment processors, such as First Data and Fiserv, provided a large set of
comparables with similar business models to TRX. Scale and cost management were critical to
these firms, but their growth was driven by different fundamentals. The secondary set
comparables were useful for assessing the scale of the market opportunity and provided a lower
bound for valuation.
For Internet and travel companies, investors widely used enterprise and price-earnings
multiples to determine valuation.7 CSFB and TRX’s management believed both multiples would
give the company credit for its strong cash flow and an improving earnings outlook. Exhibit 9
provides multiples for comparable companies and Exhibit 10 shows financial projections for
2005–07. CSFB based its financial projections on its own research and forecasts of TRX’s
business, which were more conservative than management’s forecasts. Both projections,
however, expected the company to grow EBITDA significantly after the IPO and to realize
positive earnings in 2006 and beyond. This improving profit outlook was expected because
TRX’s four top clients were experiencing rapid revenue growth themselves and increasingly
adopting more of TRX’s higher-margin services.
CSFB used P/E and EV/EBITDA multiples to estimate a pro forma value for TRX’s
equity assuming the IPO was completed. A 15% discount was then applied to this equity value.
6 Typically, investment bankers were reluctant to include large amounts of secondary shares in an IPO. The 50–
50 split of primary and secondary shares was the maximum CSFB would agree to. But this amount of secondary
shares was not enough to fully liquidate the stakes of the minority shareholders. Therefore, an overallotment option
was granted to the underwriters, which would allow the selling shareholders to sell an additional 1.02 million shares.
Approximately 17.7 million common shares would be outstanding upon completion of the IPO. 7 A commonly used enterprise multiple was Enterprise Value/Earnings Before Interest, Taxes, Depreciation,
and Amortization (EV/EBITDA), and the price/earnings (P/E) multiple was Price Per Share/Earnings Per Share.
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This discount reflected the bankers’ belief that a newly public firm would not trade at the same
value as a seasoned firm. Critics, however, contended that because IPOs were typically
underpriced and closed at a higher price in the aftermarket than the offer price, this practice
mainly resulted in “money left on the table,” which served the investment bank’s interests rather
than the issuer’s. The proposed IPO filing range based on CSFB’s analysis was set between
$11 and $13 per share.
Road Show
Davis and TRX’s management had undertaken several important strategic initiatives
during 2004, including European expansion and the pursuit of a major travel agency deal.
Despite negative earnings, TRX had strong cash-flow generation through expanding EBITDA
and aggressive working-capital management. Davis knew he would need to articulate TRX’s
“behind the scenes” business model and detail the progress of the transition away from customer
care. CSFB had stressed to him the need to communicate the drivers of EBITDA growth and the
path to profitability. To this end, Davis hired a communications consulting firm to help him and
other team members, CFO Lindsey Sykes and EVP of Strategic Planning Charlie Crissman,
prepare for the road show. They practiced the presentation and potential questions repeatedly
before departing. His bankers were impressed, saying they had never seen a more prepared
management team.
CSFB had targeted top institutional holders of online travel companies and payment
processors for the road show. The two-and-a-half-week road show commenced September
6, 2005 (Exhibit 11). Once again, the timing proved difficult. The first Tuesday of the road show
occurred after Hurricane Katrina slammed into New Orleans, and one week later, Delta and
Northwest Airlines declared bankruptcy. “Normally, investors raise issues about the industry,
and I was prepared to talk about it,” Davis recalled, “but in this case, the general view was that
the industry was so awful nobody even asked.” The schedule was grueling—starting at 7:30 a.m.,
attending working lunches with investors, finishing at 5:30 p.m., traveling to the next city,
arriving at midnight, or sometimes early in the morning. Even though Davis and his team put
every effort into communicating the company’s promise to investors, explaining the company’s
“behind the scenes” business model proved frustrating. “I’d be halfway through the
presentation,” Davis said, “having answered a number of questions, when some guy would ask,
‘What is it that you guys do again?’” Throughout the road show, the bankers were “building the
book,” taking orders from potential buyers. These orders were nonbinding, but nonetheless
helped the bankers gauge interest in a new offer.
Decision
When Davis returned to Atlanta at the end of the road show, he got a call from two
managing directors of the Global Technology Group at CSFB. From the book-building results,
CSFB concluded that the proposed file range of $11 to $13 per share could not be achieved with
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current investor demand. Based on their experience, the final IPO offer price would need to be
lowered to $9 per share to secure enough investors. This below-the file-range adjustment would
reduce the company’s expected IPO proceeds by $10.2 million, a 25% decrease.
Davis decided the company had two options: (1) go ahead with the IPO at the lower price
of $9 per share, or (2) withdraw the IPO and wait for a better time to try again.
The first option would allow TRX to raise capital (albeit less than originally expected) to
support growth and accelerate the transition away from customer care. The challenge would
come from the two selling shareholders, Hogg Robinson and Sabre. How would they respond to
the lower price? The revised price of $9 per share was lower than the price they had paid for
their shares in November 2001, and their lack of agreement to proceed at the lower price could
potentially block the IPO. He had placed calls to both parties to discuss the situation and was
prepared for difficult conversations. How likely were they to agree to the $9 price? What options
existed if they said no?
The second option to withdraw the IPO would allow TRX time to grow and complete the
exit from the customer-care business before the next IPO attempt. With an increased focus on
higher-margin businesses, some of TRX’s operational uncertainty would be reduced, and Davis
believed the valuation of the company would become more favorable. Davis also knew his
majority shareholder (BCD Technology) was patient and would allow him to make the best
decision. In the interim, though, he would have to find a way to cash out Hogg Robinson, whose
intention to exit was most pressing.
The bankers at CSFB waited anxiously to hear back from him. If Davis decided to
proceed with the IPO, the pricing meeting would commence after the close of trade that day, and
the allocation process of new shares would begin in earnest.
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Exhibit 1
TRX, INC.: INITIAL PUBLIC OFFERING
TRX Products and Services
TRX offered five major business solutions to manage transaction processing and data integration for its
clients. TRX generated its revenue by providing these solutions and charging a fee on a per-transaction
basis. As TRX solutions become more integrated in the clients’ end-to-end business processes, it
increased the transaction volume and, in turn, generated more revenue.
RESX was an online corporate booking tool that is offered through a Web-based interface for business
travelers and corporate travel managers, enabling the client to arrange airline, vehicle, and hotel
reservations. Notable RESX clients included Carlson Travel Group, Adelman Travel Group, Intel
Corporation, and World Travel BTI.
SELEX was an online reservation technology platform that allowed travel agents and customer care
representatives to make travel reservations, process service requests, and manage customer profiles in a
real-time customer service environment. SELEX was a Web-based interface that provided access to
traveler profiles and behavior data, corporate travel policies, and interoffice communications. SELEX was
used by large travel agencies and their designated customer-service providers. Notable clients included
American Airlines, Expedia, and ebookers.
CORREX was a transaction processing platform enabling efficient, automated quality control, file
finishing, and electronic ticketing of travel reservations. CORREX processed all transactions for leisure
and corporate travel that are booked on-line and off-line by agents. The software enabled such systems as
seat assignment, low-fare searches, travel upgrades, and alternate-route searches. CORREX also managed
all electronic ticketing, including e-ticket issuance, e-mail notification and communication, and pretrip
reporting. CORREX was hosted by TRX and managed by clients. Notable CORREX clients included
American Express, Boeing, Carlson Wagonlit Travel Inc., Expedia, and WorldTravel BTI.
TRANXACT was a transaction processing platform providing transaction settlement, exception handling,
document distribution, and back office accounting. TRANXACT managed transaction processing and
fulfillment activities for travel agencies, airlines and non-air suppliers. TRANXACT handled multiple
activities for our clients including exchanges, refunds, waivers and split payments, commission
management, fare loading, document distribution, debit memo processing, back office hosting, and
settlement and client reporting. TRANXACT was hosted and operated by TRX on behalf of its clients,
which included American Airlines, ebookers plc, Expedia, lastminute.com plc, and Opodo.
DATATRAX was an integration platform enabling the aggregation, enhancement, extraction, and
reporting of transaction data. DATATRAX consolidated data records from a variety of sources, including
credit card issuers, credit card networks, back office travel systems, hotel suppliers, airlines, and GDSs,
and normalized the records into a common structure in a single data repository. DATATRAX also
enabled enhancement of data records with more detailed transaction data from other sources, increasing
the value and utility of the data to the clients. DATATRAX clients included British Airways PLC,
Citibank, Ford Motor Company, Lockheed Martin Corporation, and UBS AG.
Source: TRX Prospectus, September 27, 2005.
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Exhibit 2
TRX, INC.: INITIAL PUBLIC OFFERING
Selected Financial Data
(in thousands, except for per-share data)
As of June 30
2005* 2004 2003 2002 2001 2000
Revenues:
Transaction & other revenues $59,938 $109,398 $72,760 $65,280 $66,464 $58,179
Client reimbursements 2,024 4,061 1,750 1,664 2,323 1,925
Total revenues 61,962 113,459 74,510 66,944 68,787 63,204
Expenses:
Operating 38,657 73,230 43,734 41,254 45,073 41,038
Selling, general & admin 10,227 19,885 16,023 16,169 16,296 15,909
Technology development 6,065 13,462 6,378 5,056 5,269 6,051
Client reimbursements 2,024 4,061 1,750 1,664 2,323 4,925
Restructuring 2,308 1,732 - - 533 915
Depreciation & amortization 4,810 9,943 8,250 8,009 7,999 4,337
Total expenses 64,091 122,313 76,135 72,152 77,493 73,175
Operating loss (2,129) (8,854) (1,625) (5,208) (8,706) (9,971)
Interest expense, net (1,493) (2,323) (1,867) (1,542) (708) (1,466)
Loss from equity method investments - (896) (924) (1,946) (635)
Cumulative effect of change in accounting - - - (1,700) - -
Net loss ($3,622) ($11,177) ($4,388) ($9,374) ($11,360) ($12,072)
Other Data:
Adjusted EBITDA $4,989 $2,821 $5,729 $1,877 $2,120 $5,354
Non-cash stock compensation 42 374 690 697 807 502
Cash provided by (used in) operating activities 5,735 2,611 13,054 5,443 922 (947)
Capital exp enditures 3,321 9,426 7,482 4,854 5,189 16,237
Working capital (deficit) (27,013) (24,894) (1,100) (2,091) 4,059 (7,733)
Average shares outstanding 12,462 12,248 11,482 11,481 11,491 9,270
Annual Basis
Data source: TRX Prospectus, September 27, 2005.
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Exhibit 3
TRX, INC.: INITIAL PUBLIC OFFERING
Balance Sheet Information
2004 2003
Assets
Cash and cash equivalents $10,595 $18,940
Trade accounts receivable, net 11,458 4,101
Prepaids and other 2,218 2,039
Total current assets 24,271 25,080
Property and equipment, net 19,513 15,154
Goodwill 21,512 3,473
Other assets, net 1,070 534
Total noncurrent assets 42,095 19,161
Total assets $66,366 $44,241
Liabilities and shareholders’ deficit
Accounts payable and accrued liabilities $31,143 $16,641
Customer deposits and deferred revenue 14,415 8,981
Current portion of long-term debt 3,607 558
Total current liabilities 49,165 26,180
Long-term debt, less current portion 4,583 166
Convertible notes, net of unamortized 19,317 18,960
Commitments and contingencies
Common stock, $0.01 par value; 100,000,000 shares authorized; 125 119
12,544,283 and 11,910,977 shares issued; 12,461,752 and
11,910,977 shares outstanding
Additional paid-in capital 45,001 37,850
Treasury stock, at cost; 82,531 and 0 shares (1,009)
Note receivable from shareholder (1,000) (1,000)
Deferred compensation (113) (299)
Cumulative translation adjustment (578) 213
Accumulated deficit (49,125) (37,948)
Total shareholders’ deficit (6,699) (1,065)
Total liabilities and shareholders’ deficit $66,366 $44,241
Data source: TRX Prospectus, September 27, 2005.
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Exhibit 4
TRX, INC.: INITIAL PUBLIC OFFERING
NASDAQ Market and Travel Industry Performance
Data source: Datastream, Inc.
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Exhibit 5
TRX, INC.: INITIAL PUBLIC OFFERING
Pricing Information on IPOs (July 2004–June 2005)
Data source: Equidesk.
Tech All Tech All Tech All Tech All
Jul 04 $1.9 $3.4 -17.6% -14.0% 14.2% 5.1% 49.1% 34.7%
Aug 04 $2.7 $1.9 -23.8% -14.5% 8.7% 2.0% 127.8% 92.7%
Sep 04 $0.6 $1.9 1.6% -4.4% 24.7% 9.4% 42.8% 33.8%
Oct 04 $0.4 $4.3 -1.7% -2.6% 12.1% 12.8% -5.2% 37.6%
Nov 04 $0.4 $2.6 20.1% 1.7% 35.6% 16.6% 5.8% 12.8%
Dec 04 $0.5 $4.4 12.8% 6.4% 14.4% 14.4% -7.3% 11.4%
Jan 05 $0.2 $1.9 6.5% -0.9% 23.0% 11.5% -1.5% 23.3%
Feb 05 $1.5 $4.8 -4.5% -8.6% 10.6% 5.9% -3.6% -0.3%
Mar 05 $0.3 $1.5 6.2% -1.0% 34.4% 16.5% 9.1% 6.8%
Apr 05 $0.2 $0.6 -23.1% -20.4% 7.5% 0.7% 76.5% 15.6%
May 05 $0.2 $2.4 -9.9% -8.8% -2.9% 4.7% 8.3% 23.8%
Jun 05 $0.8 $3.4 -1.1% -7.8% 5.1% 6.9% 8.0% 11.2%
Volume % Change File Price % Change Offer Price % Change Offer Price
($ billions) to Offer Price to Close Day 1 to Current
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Exhibit 6
TRX, INC.: INITIAL PUBLIC OFFERING
U.S. Technology IPO Backlog (July 2004 – July 2005)
Source: TRX, July 13, 2005.
$3.7$3.7 $4.2$4.5
$3.7 $2.9
$3.7$3.8 $4.3
$3.3$3.4 $4.1
$7.9
July
41
Aug
32
Sept
29
Oct
28
Nov
25
Dec
20
Jan
22
Feb
22
Mar
22
Apr
23
May
24
June
25
July
25
Filing Date Issuer
Amount
($MM) Bookrunner Industry
2004
Sector Perf
Revenue Run
Rate ($MM) Profitability
06/30/05 Intralinks, Inc. 50.0 JPM, UBS Internet 10.4% 44.2 No
06/15/05 Vocus 40.0 Weisel Sof tw are 9.7% 24.4 No
06/14/05 Focus Media Holdings 151.5 GS Services 3.5% 33.6 Yes
06/02/05 Activant Solutions Holdings 200.0 JPM, DB Sof tw are 9.7% 238.2 Yes
05/12/05 WebMD Health Holdings 50.0 NA Internet 10.4% 134.1 Yes
05/09/05 Chicago Board of Trade 150.0 CSFB, JPM Services 3.5% 465.8 Yes
05/09/05 TRX, Inc. 80.0 CSFB Services 3.5% 113.5 No
05/05/05 Hittite Microw ave Corp. 67.5 LEHMAN Semiconductors 5.0% 67.6 Yes
04/27/05 Website Pros 70.0 FBR Internet 10.4% 29.2 No
04/13/05 Spansion 600.0 CITI, CSFB Sem iconductors 5.0% 1,947.9 No
04/08/05 Refco 575.0 CSFB, GS, BOFA Services 3.5% 4,285.6 Yes
04/04/05 Advanced Analogic Tech 172.5 MS Semiconductors 5.0% 56.3 Yes
03/23/05 Global Cash Access 471.5 GS, JPM Services 3.5% 210.0 Yes
03/22/05 IntercontinentalExchange 115.0 MS, GS Services 3.5% 114.0 Yes
01/25/05 Buy.com Inc. 86.3 RBC Internet 10.4% 352.8 No
11/19/04 Unica Corp 57.5 DB Sof tw are 9.7% 55.3 Yes
10/06/04 Akrion Inc. 50.0 DB Semiconductor Capital Equipment 5.3% 69.2 No
08/20/04 ArcSof t 46.0 RBC Sof tw are 9.7% 19.0 No
07/09/04 Eagle Test Systems Inc. 166.8 BOFA, LEHMAN Semiconductor Capital Equipment 5.3% 94.3 Yes
06/25/04 Ikanos Communications Inc 85.0 CITI, LEHMAN Semiconductors 5.0% 63.7 No
04/16/04 Nextest Systems Corp 90.0 ML Semiconductor Capital Equipment 5.3% 37.3 Yes
04/13/04 GSI Technology Inc 103.5 ML Semiconductors 5.0% 46.8 No
03/31/04 Taleo Corp 115.0 CITI Sof tw are 9.7% 53.6 No
02/04/04 PNY Technologies Inc 100.0 LEHMAN Semiconductors 5.0% 344.8 No
Total = 25 $3,693.0
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Exhibit 7
TRX, INC.: INITIAL PUBLIC OFFERING
Principal and Selling Shareholders
Share s to be
s old in IPO
Name of Be ne ficial Owne r Numbe r Pe rce ntage Numbe r Pe rce ntage
5% shareholders:
BCD Technology 9,432,709 73.2% - 9,432,709 53.1%
Hogg Robinson Holdings 2,416,100 19.2% 2,131,401 284,699 1.6%
Sabre Investments, Inc. 1,406,956 10.2% 1,239,833 167,123 0.9%
Directors and Executive Officers:
Norwood H. (“Trip”) Davis, III 740,317 5.9% - 740,317 4.2%
Victor P. Pynn 10,000 * - 10,000 *
Lindsey B. Skyes 38,750 * - 38,750 *
Timothy J. Severt 46,250 * - 46,250 *
William F. Brindle 2,416,100 19.2% 2,131,401 284,699 1.6%
John F. Davis, III - - - - -
Johan F. (“Joop”) Drechsel 9,432,709 73.2% - 9,432,709 53.1%
Thomas Klein 1,406,956 10.2% 1,239,833 167,123 *
Michael W. Gunn - - - - -
John A. Fentener van Vlissingen 9,432,709 73.2% - 9,432,709 53.1%
All executive officers and directors
as a group (14 persons) 14,320,355 98.2% 3,386,234 10,934,121 60.7%
Other Selling Shareholders:
Christopher Brittin 54,496 * 13,766 40,730 *
Susan R. Hopley 138,023 1.1% 15,000 123,023 *
* less than 1%.
The table does not include shares that might be sold through exercise of the overallotment option.
Data source: TRX Prospectus, September 27, 2005.
Share s be ne ficially owne d
prior to the IPO
Share s be ne ficially owne d
afte r the IPO
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Exhibit 8
TRX, INC.: INITIAL PUBLIC OFFERING
TRX Market Comparables
Source: TRX.
Absent a perfectly comparable publicly traded company, investors will compare TRX to four key sectors:
Online Travel: Ctrip, eBookers, InterActive, lastminute.com, priceline.com
P ri
m a ry
√ Growth driven by similar trends
√ Proven track record with investors
x Not directly comparable business model to TRX; less capital intensive
Payment Processing: Alliance Data Systems, Certegy, First Data, Fiserv, Global Payments, iPayment, Total System Services
√ Ample sample set and relatively tight multiple range provide valid valuation benchmark; similar business models
√ Fiercely competitive in each segment; investors understand scale and cost management critical
x Growth driven by different fundamentals
Travel Distribution: Amadeus, Cendant, Pegasus, Sabre
S e c o n d
a ry
√ Scale provides indication of market opportunity
x Low valuations due to growth potential in existing markets
x Slow growth with legacy issues
Corporate Travel: American Express, Navigant
√ Valid valuation benchmark as a floor
x Business models not directly comparable to TRX
x Relatively low valuations: facing segment competition from lower cost providers
x Significantly greater scale
x May become customers of TRX
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Exhibit 9
TRX, INC.: INITIAL PUBLIC OFFERING
Summary Comparable Company Analysis
Company 4/15/2005 April July April April July April July
Online Travel
IAC/Interactive Corp $22.01 9.8× 12.1× 8.9× 21.3× 22.9× 18.3× 19.7×
Priceline 24.71 15.6× 13.5× 13.3× 20.7× 18.7× 17.4× 16.0×
CTRIP 37.5 20.2× 34.1× 14.7× 29.1× 41.4× 22.1× 31.2×
15.6× 13.5× 13.3× 21.3× 22.9× 18.3× 19.7×
15.2× 19.9× 12.3× 23.7× 27.7× 19.3× 22.3×
Payment Processors
First Data Corp $38.31 10.5× 11.1× 9.4× 16.3× 17.5× 14.3× 15.4×
Fiserv Inc 40.87 9.0× 9.4× 8.2× 18.6× 19.9× 16.4× 17.6×
Total System Services 23.99 11.5× 11.4× 10.2× 26.0× 25.0× 22.4× 21.9×
Alliance Data Systems 37.38 10.5× 11.5× 9.0× 20.5× 22.1× 17.7× 19.2×
Global Payment 61.9 12.3× 11.7× NA 24.4× 25.5× 21.1× 22.6×
Certegy 32.78 9.6× 10.8× 8.6× 18.1× 20.9× 15.9× 18.3×
IPAYMENT 41.48 8.6× 7.9× 7.9× 22.3× 20.0× 19.1× 17.2×
10.5× 11.1× 8.8× 20.5× 20.9× 17.7× 18.3×
10.3× 10.5× 8.9× 20.9× 21.6× 18.1× 18.9×
Distribution
Cendant $20.07 8.5× 9.4× 7.5× 14.3× 15.8× 12.0× 13.4×
Sabre Holdings 21.2 6.0× 6.1× 6.5× 13.9× 12.8× 13.0× 11.7×
Pegasus Solutions 11.24 6.7× 8.5× 6.4× 22.0× 26.3× 16.3× 21.6×
6.7× 8.5× 6.5× 14.3× 15.8× 13.0× 13.4×
7.1× 8.0× 6.8× 16.7× 18.3× 13.8× 15.6×
2005E
P/E
2006E
7/8/2005 % Change July
Price as of 2005E 2006E
(1) Based in I/B/E/S 5-year long-t erm growt h rat es.
(2) Represent s fully dist ribut ed values.
Dat a sources: Invest ext equit y research and company filings.
19.55 -8.40% 6.1×
11.24 - 8.1×
Median - 8.1×
Mean 0.60% 7.5×
$22.33 10.10% 8.3×
Median 6.00% 10.2×
Mean 4.60% 9.6×
41.85 10.70% 10.2×
65.2 5.10% 10.2×
38.57 15.00% 10.0×
37.08 -11.90% 7.2×
23.91 -0.30% 10.5×
$40.75 6.00% 10.4×
11.0×
56.71 33.90% 24.8×
44.4 8.00% 8.7×
Median 9.30% 11.0×
Mean 11.40% 15.4×
22.65 -9.10%
$24.27 9.30% 10.5×
($ in millions, except per share values)
Share EV / EBITDA
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Exhibit 10
TRX, INC.: INITIAL PUBLIC OFFERING
Summary of Financial Projections
($ in millions)
2002 2003 2004 2005E 2006E 2005E 2006E
Revenues
Transaction Processing 40.1$ 49.1$ 67.1$ 74.4$ 91.0$ 73.3$ 89.4$
Data Integration 3.2$ 6.0$ 10.5$ 16.9$ 22.0$ 17.0$ 22.1$
Customer Care 22.0$ 17.7$ 32.5$ 26.7$ 17.0$ 26.0$ 16.6$
Total Re ve nue 65.3$ 72.8$ 110.1$ 118.0$ 130.0$ 116.2$ 128.1$
Revenue Growth
Transaction Processing 27.2% 22.4% 36.8% 10.9% 22.3% 9.1% 22.0%
Data Integration 58.4% 89.0% 76.2% 60.8% 30.0% 61.9% 30.0%
Customer Care -33.1% -19.6% 83.3% -17.8% -36.2% -20.1% -36.0%
Total Revenue Growth -1.8% 11.5% 51.4% 7.2% 10.2% 5.6% 10.2%
Adjus te d EBITDA (1)
3.5$ 7.3$ 3.1$ 11.0$ 21.0$ 10.6$ 20.3$
% EBITDA Margin 5.4% 10.1% 2.9% 9.3% 16.2% 9.1% 15.9%
% Growth 452.0% 109.1% -57.0% 250.9% 90.6% 235.9% 92.0%
Ne t Income (9.4)$ (4.4)$ (11.1)$ (3.1)$ 12.6$ (4.5)$ 10.7$ (1)
Excludes restructuring and stock-based compensation expense.
Data source: TRX.
Actual Manage me nt Plan CSFB Re s e arch
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Exhibit 11
TRX, INC.: INITIAL PUBLIC OFFERING
Road Show Summary Schedule
Date City Time Event Location
TUE, 9/6/2005 NEW YORK 10:00 AM MGMT PRESENTATION THOMAS WEISEL PARTNERS
2:00 PM MGMT PRESENTATION CREDIT SUISSE FIRST BOSTON
WED, 9/7/2005 MILAN 3:00 PM ONE-ON-ONE MEETING SANPAOLO-IMI ASSET MGMT, MARIO DI
MARCANTONIO
4:00 PM ONE-ON-ONE MEETING FIDEURAM FONDI SPA, MATTEO CATTANEO
THU, 9/8/2005 ZURICH 8:30 AM ONE-ON-ONE MEETING CREDIT SUISSE PRIVATE BANKING
10:00 AM ONE-ON-ONE MEETING VONTOBEL ASSET MGMT
FRANKFURT 2:00 PM ONE-ON-ONE MEETING DEKA DEUTSCHE
3:15 PM ONE-ON-ONE MEETING COMINVEST (ADIG)
4:30 PM ONE-ON-ONE MEETING UNION INVESTMENT GMBH
FRI, 9/9/2005 LONDON 8:00 AM ONE-ON-ONE MEETING INSIGHT INVESTMENT
9:30 AM ONE-ON-ONE MEETING CHEYNE CAPITAL MGMT LTD
11:00 AM ONE-ON-ONE MEETING HENDERSON GLOBAL INV LTD
12:30 AM GROUP LUNCHEON INTERNATIONAL FINANCIAL CENTER
MON, 9/12/2005 BOSTON 7:45 AM ONE-ON-ONE MEETING FRONTIER CAPITAL MGT
8:45 AM ONE-ON-ONE MEETING PUTNAM ADVISORY INC
10:00 AM ONE-ON-ONE MEETING ALYDAR CAPITAL
11:15 AM ONE-ON-ONE MEETING MASS FINANCIAL SERV INC
12:15 PM GROUP LUNCHEON BOSTON HARBOR HOTEL
2:00 PM ONE-ON-ONE MEETING FIDELITY MGMT & RESEARCH CO
3:00 PM ONE-ON-ONE MEETING WELLINGTON MANAGEMENT CO
4:15 PM ONE-ON-ONE MEETING LOCH CAPITAL MGMT LLC EXEC
5:15 PM ONE-ON-ONE MEETING BLACKROCK INC(PNC)
TUE, 9/13/2005 NEW YORK 8:00 AM ONE-ON-ONE MEETING TIMESQUARE CAPITAL MGMT INC
9:15 AM CONFERENCE CALL TRAFELET COMPANY LLC
10:00 AM ONE-ON-ONE MEETING GLG PARTNERS
11:15 AM TWO-ON-ONE MEETING STADIA/SIGMA EXECUTION ACCOUNT
12:30 PM GROUP LUNCHEON NEW YORK PALACE
2:00 PM ONE-ON-ONE MEETING JP MORGAN FLEMING
3:15 PM ONE-ON-ONE MEETING ALLIANCE CAPITAL MGMT CORP
4:30 PM ONE-ON-ONE MEETING ING FURMAN SELZ ASSET MGMT
WED, 9/14/05 BALTIMORE 8:30 AM ONE-ON-ONE MEETING T ROWE PRICE & ASSOC
PHILADELPHIA 11:30 AM ONE-ON-ONE MEETING GARTMORE GLOBAL INVESTMENTS
BERWYN 1:15 PM ONE-ON-ONE MEETING CHARTWELL INVESTMENTS PARTNERS
2:45 PM CONFERENCE CALL FRIESS ASSOCIATES
PLAINBORO 3:30 PM ONE-ON-ONE MEETING MERRILL LYNCH INVESTMENT MGMT
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Exhibit 11 (continued)
Road Show Summary Schedule
Date City Time Event Location
THU, 9/15/2005 NEW YORK 7:30 AM ONE-ON-ONE MEETING YORK CAPITAL MANAGEMENT
8:45 AM ONE-ON-ONE MEETING CHILTON EXECUTION
10:00 AM ONE-ON-ONE MEETING ALGER FRED & CO INC
11:15 AM ONE-ON-ONE MEETING LAZARD FRERES ASSET MGMT
12:30 PM ONE-ON-ONE MEETING KINGDON CAPITAL
3:00 PM ONE-ON-ONE MEETING FEDERATED GLOBAL INV MGMT
4:15 PM ONE-ON-ONE MEETING PEQUOT CAPITAL MGMT
FRI, 9/16/2005 KANSAS CITY 7:45 AM ONE-ON-ONE MEETING AMERICAN CENTURY INVESTMENTS
9:00 AM CONFERENCE CALL MAZAMA CAPITAL MANAGEMENT
10:00 AM ONE-ON-ONE MEETING WADDELL & REED ASSET MGMT
HOUSTON 2:00 PM ONE-ON-ONE MEETING VAN KAMPEN ASSET MGMT (AMERICAN CAPITAL)
MON, 9/19/2005 DENVER 7:30 PM ONE-ON-ONE MEETING WELLS CAPITAL
9:00 AM ONE-ON-ONE MEETING JANUS CAPITAL MGMT
SAN MATEO 12:00 PM CONFERENCE CALL AIM MANAGEMENT INC
12:30 PM ONE-ON-ONE MEETING FRANKLIN ADVISERS
SAN FRANCISCO 2:30 PM ONE-ON-ONE MEETING CAPITAL WORLD INVESTORS
3:30 PM ONE-ON-ONE MEETING RS INVESTMENT MGMT
TUE, 9/20/2005 SAN DIEGO 7:15 AM ONE-ON-ONE MEETING NICHOLAS-APPLEGATE CAP MGMT
8:15 AM ONE-ON-ONE MEETING RICE HALL & ASSOC
LOS ANGELES 11:30 AM ONE-ON-ONE MEETING TCW ASSET MANAGEMENT CO
1:00 PM ONE-ON-ONE MEETING CAPITAL RESEARCH & MGMT
2:30 PM ONE-ON-ONE MEETING PROVIDENT INV COUNSEL
WED, 9/21/2005 MINNEAPOLIS 8:00 AM TWO-ON-ONE MEETING PEREGRINE CAPITAL MGMT/US BANCORP ASSET MGMT
MILWAUKEE 11:30 AM ONE-ON-ONE MEETING WELLS CAPITAL
1:15 PM CONFERENCE CALL MAGNETAR INVESTMENT MANAGEMENT LLC
2:15 PM GROUP MEETING PFISTER HOTEL
THU, 9/22/2005 PALO ALTO 9:00 AM ONE-ON-ONE MEETING SELIGMAN J W AND CO
SAN FRANCISCO 11:00 AM ONE-ON-ONE MEETING RS INVESTMENT MGMT
1:30 PM ONE-ON-ONE MEETING PRIDES CAPITAL
Data source: TRX.
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