The planned $200.4 million acquisition of travel management company Travel and Transport by Australian TMC Corporate Travel Management, once closed, should offer travel buyers another option to consider when sourcing global travel management service providers. But it also might 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 earlier this week, to close by the end of October, pending a U.S. federal government regulatory review, Travel and Transport CEO Kevin O'Malley this week 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 for years had sought to acquire his company.
"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.
"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," O'Malley continued. "It doesn't mean we have to sell the company. We'll only do that if we decide it's the right thing to do. 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."
It's a conversation that other TMCs may well be having. In the United States, signs of business travel volume recovery are few and far between; air tickets sold during the week ending Sept. 27 were down more than 86 percent year over year, according to Airlines Reporting Corp. And though some TMCs have been able to secure loans and other financial support from the U.S. government and other sources, the length of the pandemic and the absence of signs of immediate recovery could cause some to seek alternatives.
"This was inevitable," Goldspring Consulting partner Will Tate said in an email to BTN of the TMC consolidation. "Revenue collapsing, little to no transactions and companies' uncertainty as to 'back to travel' all but guaranteed industry consolidation. We do expect much more of this, although most likely for the small to midsize TMCs."
Partnership Travel Consulting founder and CEO Andy Menkes added in an email to BTN that not only was more industry consolidation all but guaranteed but also could involve players from outside the industry.
"It's fairly easy to predict that we will see further consolidation as a result of Covid-19 ,and it will impact virtually all of the major verticals, from [meeting and event] specialists to regional TMCs and hotel properties," according to Menkes. "As to the TMC model, it's an unfortunate good bet that we will see further consolidation either as a result of mergers or true acquisition. I would not be surprised to see some non-TMC player find the funding to get into the managed travel space, as the long tail will always be there. It’s just a matter of time and patience."
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. Pherous in August 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."
A New Player
Much of the detail of the process of integrating Travel and Transport into CTM both from the perspective of their service and product offerings and consolidating their back-office processes has yet to be determined, O'Malley said, adding that those discussions are occurring now.
"We've had some preliminary conversations, but we'll really get busy in earnest here in the coming few weeks to figure out from a tech perspective what we want to do and how we combine the best of what CTM has and what T&T has," O'Malley said. "So that one's a little bit, 'more to come,' but I think the more to come will come pretty quickly."
One CTM technology offering that Travel and Transport clients will have access to is its proprietary Lightning booking tool; T&T has not developed a booking tool of its own.
"They've been able to get pretty wide-scale acceptance across their client base on Lightning," O'Malley said. "It's been very well-received in the market. So 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."
The speed and effectiveness of Travel and Transport's integration into CTM will go a long way to establishing the combined TMC's role in the global marketplace, according to Goldspring's Tate.
"Buyers realize many benefits from this: innovation, process efficiency, continual talent improvements and pricing competitiveness," Tate said. "As always, the speed to global consistency, adoption of common practices, platform integrations and technology alignment remains the true measure towards global capabilities."
A 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. PTC's Menkes suggested that unifying that network with CTM would enable the merged company to compete more effectively on a global scale.
"This is an example of one plus one equals three," according to Menkes. "Whereas CTM had ownership in a number of key markets outside the U.S., the Radius network gives them the ability to expand their global footprint. For T&T, their Radius network had some competitive disadvantage against the four truly global TMCs, so this allows the combined entity to get closer to parity as it relates to global location ownership. The key will be how they can standardize their service-level agreements and optimize the quality of the global data that they will consolidate on behalf of the combined entities."
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 program, which already [is] a very strong hotel program, 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."