The planned $200 million acquisition of Travel and Transport by Australian TMC Corporate Travel Management will offer travel buyers another option to consider when sourcing global travel management service providers, but the deal could also herald a new wave of industry consolidation as TMCs and other suppliers struggle amid the crippling Covid-19 pandemic.
CTM and Travel and Transport expect the deal, announced last week, to close by the end of October, pending a US regulatory review, Travel and Transport CEO Kevin O'Malley told BTN.
O'Malley, who will serve as North America CEO of CTM after the deal closes, acknowledged that Covid-19 and its devastating effect on business travel was a key driver of the deal, while noting that CTM had sought to acquire his company for several years.
"CTM had been pursuing T&T for the better part of six years," O'Malley said. "I've gotten to know [CTM managing director] Jamie Pherous over time. He was persistent, and the answer had been along the way that we were going to choose to stay the course. But if that ever changed, we would let them know. And so when CTM reached out towards the end of April, I talked to our board and I said, ‘I think we really should [consider this]’."
O’Malley continued: "I think our job given the times and not knowing what's going to happen with Covid is to get all the cards in our hands that we can, and then we'll figure out how to play our hand. And so we entered into conversations with CTM, and the further we got into conversations with CTM, the more it became clear to us that this was going to very likely be the right path."
Debbie Carling, CEO Europe at CTM, added: “We have been speaking for years to T&T and have always admired them. We know they did not have to sell but when we were able to really work together and look at the opportunity during the pandemic it made sense to us both in how we could combine and come out of this crisis stronger together.”
It's a conversation that other TMCs may well be having too. While there is at least some light at the end of the tunnel for the business travel industry in countries like Germany and France, recovery is notably stalling in the UK where the TMC market has often been described as overpopulated.
Deborah Potts, director at business growth, mergers and acquisitions specialist Summit Advisory, says the CTM-T&T deal was “pretty dramatic” but “makes total strategic sense when you are a highly ambitious business like CTM”.
“Overnight you increase your customer base, buying power and can consolidate costs.”
And will we see this sort of activity now pick up pace in the current environment? “The short answer is ‘yes’,” says Potts, who adds that, pre-Covid, “consolidation was already the name of the game, particularly here in the UK”.
The UK market had already shrunk in recent years, with Clarity acquiring Ian Allan Travel and Portman, Reed & Mackay buying Hillgate and Business Travel Direct, Gray Dawes picking up several TMCs including Amber Road and Giles Travel and, indeed, Statesman Travel being purchased by Travel and Transport.
“The crisis caused a definite pause in M&A activity as everyone focussed on the impact on their own client base and had to adapt internally,” says Potts. “However, there are, arguably, now more reasons than ever to look at mergers or acquisitions as part of a board’s strategy for future success.”
Potts believes TMC whose profits were already being negatively impacted by Brexit and those struggling to keep up with fast-evolving technology are among those ripe for acquisition.
“Plus, I expect the current crisis to bring forward retirement plans for others as owners realise they are facing probably years rather than months for a full recovery, if ever. No matter how strong your cash reserves or ‘pension pot’ is – as many owners view them – no one likes to see these reserves being diminished.”
In the UK, CTM and Travel and Transport’s combined sales (£645million and £200million UK sales respectively in 2019) will elevate the merged organisation from fifth and 15th in BTN Europe’s Leading 50 TMCs ranking to 3rd, leapfrogging BCD and FCM. CTM will sit behind only CWT in second and Amex GBT in first, with GBT having itself bought its way into the top spot with the acquisition of HRG in 2018.
Although bolstering its strength in the UK and Europe, the acquisition of Travel and Transport was primarily about building CTM’s footprint in North America.
“It gives CTM a really strong US network with interesting US headquartered clients. They also get DVI, a data visualisation platform, and the Radius network too,” says Chris Crowley, partner at consultancy Nina & Pinta.
“It’s a significant move in the market – a typical venture capitalist move. They’ve seen an opportunity and moved on it and it won’t be the last in the industry. With the kind of economy we’re in right now, I imagine there will be more coming along in the next three to nine months.”
Crowley continues: “Every major TMC is looking to do two things: improve their cash liquidity and streamline their fixed assets structure. Some are doing it better than others, and for some it’s harder than others. The privately owned or venture capital funded businesses where the private finance is solid… they’re the ones that look best equipped to handle the next 12 months.”
Indeed, both O'Malley and current CTM North America CEO and COO Maureen Brady, who will serve as CTM North America COO after the acquisition closes, pointed to CTM's financial strength and relatively sturdy performance amid the pandemic as a key aspect of the deal. In August, Pherous told investors that CTM's summertime booking activity and cash burn rate were better than the company had projected in May.
"One of the reasons that CTM has been more successful than maybe some other TMCs during this Covid period is that we've had a great diversification of client type," Brady told BTN. "A lot of our clients are in those essential businesses, whether they be healthcare, food, service, government, et cetera. Travel and Transport also has great diversification. We did some mapping overlap and found that it's quite complementary geographically and by professional sectors."
As Potts notes, the role of technology can play an important role in TMC acquisitions too, and Travel and Transport clients will gain access to CTM’s proprietary Lightning booking tool – T&T has not developed a booking tool of its own.
"They've been able to get pretty widescale acceptance across their client base on Lightning," O'Malley said. "It's been very well received in the market. We'll still have clients that choose to use other online booking tools, but having Lightning as a really good viable option was really appealing to us."
Another key component of the global aspect of the deal is Travel and Transport’s ownership of the Radius global network of more than 100 travel agencies that provide corporate travel and meetings management throughout the world. O'Malley said the precise details of the Radius integration remained in development but added CTM would retain the Radius name.
"We'll spend some time looking at how to optimize and maximize what we're doing between the CTM global network and Radius, but Radius will still be here," O'Malley said. "The Radius hotel programme, which already [is] a very strong hotel programme, will be further enhanced by a lot of what CTM will bring to bear as well. CTM is one of the biggest distributors of wholesale rates in Asia. And that will be a big add to the program that will benefit our customers and our members and Radius."
A further consideration in such deals is the potential streamlining of workforces, a process already forced on many TMCs by the pandemic. CTM would not give details, but Carling said the organisation “continues to review [its] business and workforce size, irrespective of the acquisition”.
In the meantime, Carling said CTM will continue to expand its operations, drive organic growth and “seek merger and acquisition opportunities that add scale in niche travel sectors, complementing our existing business and geographical footprint.”