Spot­light on... In­dus­try con­sol­i­da­tion

The Business Travel Magazine - - Arrivals Spotlight -

Is a trickle of TMC merg­ers and ac­qui­si­tions be­com­ing a tor­rent? The im­pend­ing pur­chase of HRG by Amer­i­can Ex­press Global Busi­ness Travel this spring is cer­tainly a wa­ter­shed mo­ment

Where were you when you heard the news? For the busi­ness travel in­dus­try, and for the TMC sec­tor in par­tic­u­lar, the an­nounce­ment in Fe­bru­ary that Amer­i­can Ex­press Global Busi­ness Travel has lined up the pur­chase of HRG was of the mag­ni­tude that tends to stick in the mem­ory.

There was nat­u­rally a lot of chat­ter and spec­u­la­tion as peo­ple di­gested the news, but most will freely ad­mit that they were sur­prised. Af­ter all, Amex GBT and HRG are two of the big­gest travel man­age­ment com­pa­nies in the world, with re­spec­tive es­ti­mated an­nual turnovers of £18bil­lion and £16bil­lion glob­ally.

The news drew par­al­lels with the leisure travel in­dus­try in 2007, when a merger be­tween Thomas Cook and My­travel was swiftly fol­lowed by the merger of Thom­son and First Choice – four be­came two. Could the same hap­pen in the cor­po­rate sec­tor?

The domino ef­fect “This is the first move in a big game of chess,” one in­dus­try vet­eran told me. “Other big TMCS will be in a po­si­tion where they need to move. They can’t af­ford to let one TMC be so much big­ger. If I was in the board­room of one of the other big TMCS I’d be se­ri­ously look­ing at fol­low­ing suit.”

They con­tin­ued: “It’s all about vol­ume. The com­bined busi­ness will be able to get much lower rates for their cus­tomers. And if I was a sup­plier I’d be se­ri­ously wor­ried. They’re in a po­si­tion where they have to be giv­ing them a good deal. Amex will want se­ri­ous dis­counts.”

That’s good news for clients but is tem­pered by the po­ten­tial for dis­rup­tion as the two com­pa­nies “de­liver syn­er­gies through cost sav­ings and scale ben­e­fits” – word­ing taken from the two TMCS’ of­fi­cial state­ment. It spoke of the busi­nesses’ re­spec­tive in­vest­ments in peo­ple and tech­nol­ogy and high­lighted the “com­ple­men­tary ge­o­graph­i­cal foot­print of each com­pany” – some­thing that most com­men­ta­tors agree on.

“But clients won’t want the dis­rup­tion of in­te­gra­tion,” says our in­dus­try com­men­ta­tor. “And imag­ine if you’d just left one of them and moved to the other one be­cause you

were un­happy with some­thing? You wouldn’t be pleased, would you?”

An­other po­ten­tially detri­men­tal ef­fect – or at least one that some in the in­dus­try have voiced – is the im­pact of less com­pe­ti­tion. “Re­duced com­pe­ti­tion will make pro­cure­ment of travel tougher,” says busi­ness travel con­sul­tant Chris Pouney.

Nat­u­ral pro­gres­sion Other TMCS are view­ing the merger as the nat­u­ral pro­gres­sion of the in­dus­try but also as an op­por­tu­nity.

“Our mar­ket is in­cred­i­bly frag­mented and will nat­u­rally con­sol­i­date,” says Pat Mcdon­agh, CEO of Clar­ity, which merged with Port­man Travel in 2016.

“The deal makes sense as it cre­ates un­ri­valled scale but there is likely to be dis­rup­tion as an in­te­gra­tion of this size takes place. For us it rep­re­sents a great op­por­tu­nity to ac­quire new busi­ness from cor­po­rates who are look­ing for a more tai­lored ap­proach.”

Our anony­mous con­trib­u­tor con­curs: “There could be a chance for mid-mar­ket TMCS to pick up ac­counts from the fall­out. They will go right up the scale in those TMCS’ pri­or­i­ties.”

Mid-mar­ket movers Many mid-mar­ket TMCS are them­selves look­ing at growth through merg­ers and ac­qui­si­tions, a theme that was preva­lent at Fe­bru­ary’s Busi­ness Travel Show.

Al­most ev­ery TMC I met with de­clared an in­ter­est in not just or­ganic growth – which goes with­out say­ing – but also in ac­quir­ing fel­low agen­cies in the UK or over­seas to help fast-track ex­pan­sion.

“It’s be­com­ing harder for the smaller guys to keep pace with the tech­no­log­i­cal and reg­u­la­tory de­mands of to­mor­row’s mar­ket and some owner-man­agers are go­ing to be look­ing for an exit,” says Mcdon­agh.

Gray Dawes, for ex­am­ple, has picked up five smaller TMCS in the last three years and is known to be seek­ing fur­ther ad­di­tions, while CTI and Reed & Mackay have both made pub­lic their in­ten­tions.

Backed by pri­vate eq­uity in­vestors, CTI is “ex­pect­ing to grow ag­gres­sively”. It is on tar­get to achieve £80mil­lion in turnover in this fi­nan­cial year and aims to dou­ble in size within the next three years.

“We’re look­ing at TMCS in sim­i­lar sec­tors to which we al­ready op­er­ate, such as pro­fes­sional ser­vices, but we wouldn’t ex­clude other op­por­tu­ni­ties,” says CTI Chair­man, John Mcewan.

Reed & Mackay, also with the back­ing of in­vestors, has sim­i­lar am­bi­tions to dou­ble in size and be­lieves that be­com­ing a £750-800mil­lion busi­ness in three years is “more than achiev­able”. Could that in­volve UK ac­qui­si­tions? “Yes, if the right ones come along,” says Group CEO Fred Strat­ford. “We’ve been se­lec­tive to date but we’ll al­ways look at things if they have the same mind­set as us.”

Clar­ity’s Mcdon­agh is more coy about his TMC’S tar­gets. “We’re look­ing for ad­di­tional vol­ume and ca­pa­bil­i­ties but the deal has to be the right one at the right time. We’re not in any par­tic­u­lar hurry,” he says.

And it would ap­pear that Amex GBT, too, re­main on the look­out for ap­pro­pri­ate op­por­tu­ni­ties. “We’re proac­tive in ac­quir­ing in ar­eas of peo­ple, con­tent and tech­nol­ogy,” says Ja­son Geall, the com­pany’s VP and Re­gional Man­ager for North­ern Europe. “Fu­ture ac­qui­si­tions of more TMCS is very pos­si­ble,” he adds.

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