Spotlight on... Industry consolidation
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.