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The last few weeks have seen a flurry of acquisitions in the corporate travel sector. Gary Noakes reports on what we can expect next from the sector.
Two days at the start of May saw four travel management company brands snapped up. The biggest deal saw market leader American Express Global Business Travel buy Egencia, Expedia’s business travel arm, in a transaction valuing GBT at $5.4 billion.
American Express GBT will retain the Egencia brand, the eighth largest TMC, according to BTN Europe’s 2020 50 Leading TMCs. GBT said the deal was a “strategic transaction” 18 months in the making.
As part of the deal Expedia will take a 14% stake in GBT, worth around $750 million and gain a 10-year accommodation supply deal worth $60 million annually – a sound move for both.
Egencia will be positioned towards SMEs and the middle market. It is another key acquisition by GBT, which in 2018 bought key rival Hogg Robinson Group (HRG), costing up to £410 million.
On the same day, Global Travel Management bought the name and client base of Baxter Hoare following its collapse in March.
A day later, US-based TripActions made its first acquisition, buying London-based Reed & Mackay for an undisclosed sum. Reed & Mackay is ranked ninth largest TMC, behind Egencia.
TripActions raised $155 million in January and is led by its in-house technology, which it plans to use to enhance traditional TMC purchases.
The flurry concluded with Good Travel Management, a top 50 player catering for SMEs, announcing it had bought Yorkshire-based Company Travel, which specialises in engineering, manufacturing and construction.
The deals continue a long-term trend. Consolidation among TMCs has gathered pace in the last few years simply because there are so many small, independent brands. Mid-pandemic, many are ripe for picking, especially as unlike TMCs in larger countries, those in the UK rely mostly on overseas travel for their income.
Covid’s impact has already changed the TMC landscape. Last year saw three collapses: Horncastle Executive Travel and two agencies which straddled corporate and leisure travel; Thornton’s Travel and Business Travel by STA.
The TMC pond is small compared with leisure travel. A random group of the smallest top 250 Atol-holders shows turnover of £14-£18 million, three times that of the 50th place TMC (according to BTN Europe’s data), so picking up a few smaller corporate travel brands does not take as deep pockets as it does in the leisure sector.
Former Portman Travel chief executive Steve Allen has also worked in leisure travel. Now a director with consultancy The Firebird Partnership, he believes Covid has just accelerated an existing trend.
“In [leisure] tour operating and travel agencies, there are a number of large and successful players and a number of small, specialist niche players; but there are very few companies that occupy the middle space now.
“The gap between small and large operators is vast. I think the same is happening in the TMC world.
“In the UK, we have already seen consolidation for a few years – there won’t be as many TMCs around in 12 months as there are now. It’s like what happened to tour operators in the UK, Germany and Scandinavia.”
Clive Wratten, Business Travel Association chief executive, expects activity among his TMC membership: “It’s a distinct possibility there will be more to come,” he said.
However, Wratten pointed out there were still many strong, smaller players, many with specific niches.
“There is a long tail; there’s a lot of TMCs and the small companies are probably in good shape. There will be a very different market coming out of the pandemic, but there’s still a huge amount of choice for customers.”
Nevertheless, it is the time to swoop, with low prices and a very changed market ahead, according to Scott Davies, chief executive of the Institute of Travel Management, which represents travel buyers.
“The pandemic has understandably weakened the balance sheets of most TMCs and significantly lowered the asking prices from the traditional four to five times Ebitda (earnings before interest, taxes, depreciation and amortization) to a fraction of this,” he said.
“As we come through the other side of the crisis the TMC landscape will look very different.”
Allen believes there will be significant pressures on TMCs that make it to the post-Covid period. These include obtaining content at competitive rates with the trend towards direct sales by hotels and via channels like NDC (New Distribution Capability) in the airline sector.
“Short term, airlines and hotels are happy to secure any business, but over time they will be looking hard at who they service and how much they pay to distribute their product. Hotels are pushing hard on their loyalty schemes to get customers to buy direct. That’s not going away.”
Equally, corporates will look for a one-stop shop to ensure a common approach to health and safety and duty of care post-Covid.
“Globally, clients are increasingly looking for consistency across markets – dealing with 20-30 TMCs to cover destinations is no longer an optimal solution. Typically, it’s now one company or one plus an occasional regional specialist,” Allen said.
Then there is the question of how corporate travel will return. Allen believes there will be “much more considered purchases”.
James Beagrie, Meon Valley Travel managing director, believes a global recession is imminent, with knock-on effects for corporate spend.
“No-one speaks of the elephant in the room, which is credit evaporating,” he said. Beagrie believes businesses globally that have “burned a lot of cash surviving” will see credit lines – and travel budgets - restricted.
Beagrie also believes some organisations will realise how well they coped without any travel and will restrict it in future. “They will use Zoom and Microsoft Teams and finish it off person to person later.”
This, he said, meant some TMCs had not yet realised the seriousness of their predicament.
“The opportunists will be looking at the small TMCs thinking ‘these guys don’t realise they are bust yet, how many can we gobble up?’”
“We’ll see a lot of older owners that don’t have the appetite to put their house on the line again. It is going to polarise the industry.”
