TMC acquisitions, mergers and failures have been a feature of the Covid pandemic that has devastated the business travel industry, but last week’s deals took industry consolidation to a new level.
The first saw American Express Global Business Travel (GBT), a legacy TMC well versed in scaling up through acquisition, announce a binding offer to bring Expedia-owned Egencia into its stable.
GBT has already acquired New York-based Ovation Travel Group this year and, most notably, bought HRG in 2018 in a deal that saw it become the UK’s largest TMC. Also established as the world’s largest TMC, the addition of Egencia – which is thought to be the world’s fourth or fifth largest TMC – gives GBT an incredibly dominant position.
The second deal, announced the very next day, featured perhaps a more surprising pair of protagonists. Tech-first, Silicon Valley-based TripActions revealed the details of its very first acquisition – the purchase of Reed & Mackay, a UK TMC renowned for its high-end, high-touch service but also its proprietary technology.
Remarkably, they were not the only deals announced last week, with Frosch International Travel acquiring Valerie Wilson Travel in the US, having already bought CorpTrav and Luxe Travel in 2020, and on a smaller scale, Good Travel Management (ranked the 41st largest TMC in the UK) picking up Company Travel.
TMC mergers and acquisitions have always occurred, especially in the UK where the market has been considered overpopulated, but the pandemic is accelerating consolidation as organisations positions themselves for the post-Covid travel environment.
Both of last week’s major deals will add not only volume for their buyers but, crucially, strengthen areas in which they are lacking. As one commentator put it, GBT is a legacy service business adding technology expertise, while TripActions is the opposite – a tech business adding offline service. GBT will also expand its accommodation content through an arrangement with Expedia Partner Solutions as part of the deal.
The Egencia customer
“Surprise and curiosity” were the initial reactions of one travel manager, an Egencia customer, upon learning about Amex GBT’s planned acquisition. “I heard about it through BTN and other media outlets, and Egencia informed us as a client through a formal email the same day,” said the travel manager who shared their views with BTN Europe but preferred not to be named.
Managing the concerns and questions of a TMC being purchased is a key part of any acquisition, and clients of Egencia and Reed & Mackay alike will be asking themselves ‘what does this mean for us?’
Reed & Mackay clients have been told all current staff and the brand will be retained and the TMC will be operated relatively independently to TripActions. Although the Amex GBT-Egencia deal will not go through for some time, GBT has indicated similar treatment of Egencia.
“How they integrate their operations and teams will be observed closely by clients. No client will want to suffer operational disruption especially as we look towards travel slowly reopening,” says the Egencia customer.
The former R&M consultant
A former Reed & Mackay consultant who left their role earlier in the pandemic but has since found work with another leading TMC, like others, points to cultural differences that must be managed in any acquisition.
‘Unusual bedfellows’ has been a term frequently used to describe TripActions’ acquisition of Reed & Mackay – a West Coast tech company whose uniform is t-shirt, jeans and trainers contrasts sharply with high-touch service specialist Reed & Mackay and its portfolio of suit and tie-wearing customers across the law, finance and professional services sectors.
“With any acquisition, I think you’ll find clients will always wonder if the specific service they have come to know and appreciate will follow to the new business,” says the consultant who has since secured a role at another leading TMC.
“I’m sure that clients and advisors alike will be having confidential conversations right now to ensure their business needs will be met. Acquisitions can often stimulate real positive change within an organisation but it won’t always work for everyone.”
Another consultant, originally with Hillgate Travel when it was acquired by Reed & Mackay, has already experienced being on the inside of a takeover. “It’s a challenging time right now for colleagues across the industry and I believe we are seeing a lot of surprising partnerships being struck.”
The appeal of the deal
The Egencia customer, meanwhile, believes GBT’s move demonstrates the value it sees in Egencia’s digital capabilities.
“Egencia has had huge backing in their technology and platform over several years from Expedia, and GBT have made their own significant investments in their Neo platform too. I’m very interested to see if and how they plan to integrate them.”
But it’s not just about the technology, they add, with Egencia also boasting “an excellent leadership team and hard-working customer support and account management teams”.
The travel manager continues: “I imagine the whole package is what GBT have been drawn to. The hope would be that they successfully add to that rather than try to break it apart or simply absorb it into what they have already.”
And what if the travel manager had recently moved their programme from Amex GBT to Egencia? “I would be watching the developments and plans for this acquisition very closely. Those clients won’t have moved without a valid reason and will want assurances that the value and opportunities they saw in moving to Egencia aren’t lost.”
The travel manager says consolidation among TMCs is “unsurprising” given what the industry has gone through but is “not necessarily a bad thing as long as there remains sufficient choice in the market. My main concern is that as these acquisitions take place and these big TMCs get even bigger, that they don’t lose sight of their individual clients.
“It will be vital they keep listening to them and to partner with them to drive through the changes that will be necessary for business travel to resume safely and successfully. The hope would be these acquisitions better place them to do just that.”
The private equity business
Mid-market private equity firm Inflexion bought Reed & Mackay in 2016 in a deal rumoured to have been worth £170million. It invested in the TMC’s technology and a series of acquisitions that expanded its overseas footprint before selling the business to well-funded TripActions. Terms of the deal were not disclosed.
“Four to five years’ ownership is pretty typical for a private equity investor. It gives you enough time to invest in the team and the people and, in this case, to grow from three or four countries to over 20,” Mark Williams, partner at Inflexion, told BTN Europe in a longer interview which can be read in full here.
The sale process commenced in February when Inflexion contacted “a number of likely bidders many of whom had regularly approached us”, says Williams.
“Bizarrely for the weird world we’re in at the moment, it was amazingly straightforward. We had our chosen bidder [TripActions] in a matter of weeks and then it took another four or five weeks to complete the deal. That is incredibly rapid.
“We were surprised they delivered at the speed they did and that they outcompeted some other very seasoned competitors, because they’ve never done a deal before. It’s a great home – a really interesting company – and it’s intriguing to see what they’ll do.”
Buyers looking for bargains in the current environment will be disappointed according to Williams, who says TripActions valued Reed & Mackay “broadly in line with what you’d have seen pre-pandemic”.
“You can’t value businesses on current EBITDA but we do know things will get back to normal. We’re not sellers at any price. We pushed the right party to the right price. We always could have kept Reed & Mackay. It’s a perfectly liquid business, it had lots of cash, was well managed, good management, good customers.”
Williams believes that accelerating consolidation is partly due to a “pandemic effect in that some of the weaker players have been gobbled up”, but also because of increasing investment industry-wide in technology and the need to keep up.
“I expect the big players are all looking at the market right now because they see it consolidating but everyone needs good technology to move up a level. The Amex GBT-Egencia deal tells you everything you need to know. Amex is a great business but relatively old school. Very different to TripActions. And they’ve seen the need to acquire Egencia at the other end of the travel tech spectrum. I think both deals signal where the market is going, at least at the top end – you need quality service and the best technology.”
Williams continues: “I think there are two types of opportunity now. Those [TMCs] that need to consolidate because they’re not really viable post-covid. They will be cheaper at the moment but they need to be put together quickly and sold… and that just means you’ll pay less for them but they’ll be worth less. That’s a strategy that will roll up the smaller players.
“And then I think there’s the kind of deals we’ve seen this week where TMCs are adding or strengthening a missing component. These deals aren’t going to be cheap but they will be more profitable in the long run. The next few years is going to be fascinating.”