The announcements last week of Carlson Wagonlit Travel's plans in the coming months to change its ownership structure and acquire Navigant International were well received by industry observers, who anticipate continuing healthy competition among the top travel management companies for multinational business.
"This new monster TMC will clearly be a force in the marketplace," said former Navigant president Thom Nulty.
"It is obviously a fabulous opportunity to extend the franchise and the brand of CWT and create a global powerhouse," said TRW Consulting's Tom Wilkinson. "The great challenge will be the integration."
They run a mix of technologies that seem to clash as much as they match, but a number of CWT and Navigant executives have significant experience with TMC integrations. CWT Worldwide vice president of integration David Moran, who spearheaded the combination of Maritz Corporate Travel with CWT, will lead the overall merger. CWT North America COO Jack O’Neill and Navigant CFO and COO Bob Griffith will collaborate in North America, while CWT's head of Australia/New Zealand, Ross Irving, will oversee activity there with regional leader Berthold Trenkel and Navigant's Darryl Laverty.
According to a document filed by Navigant with the U.S. Securities and Exchange Commission, the companies intend to rapidly integrate selling, general and administrative functions and to maximize consolidated sourcing opportunities. The filing also referred to "well thought-out rationalization of information technology" and "seamless, careful integration of customer interface" as part of a process the document described as "realistically" taking up to two years.
"In both cases, the technology strategy includes proprietary tools as well as third-party integration capabilities," said CWT president and CEO Hubert Joly. "Both companies are financially strong. That doesn't mean integration is easy, but we do have much in common."
Both companies use products furnished by Navigant's Aqua Software division, but CWT uses other mid-office tools as well. CWT and Navigant use two different back-office systems, and between them they own three online booking tools--although one of the two Navigant tools was recently tagged for retirement. These and other business-specific technology questions will be answered by an integration team that "will decide what technologies will remain and what technologies, if any, will be eliminated or added. Even if some technologies are discontinued, a full analysis will be performed to ensure consistency of features and functions for all employees and clients."
In conference calls, executives used the phrase "do no harm" more than once when referring to client impact from the changes. "The announcement is just that, and we have to run a business and manage relationships and customers," said Navigant chairman and CEO Ed Adams, who will leave to pursue other interests after a transition period. "I would hope there will be an opportunity to serve a number of the licensees in TQ3," the network whose name rights Navigant obtained after its Germany-based TQ3 partner announced plans to be bought by BCD Travel.
Other than Adams and Griffith, the companies did not describe next steps for senior leaders, leaving things "relatively open," Joly said when asked about potential savings on senior salaries. The growth of lower-revenue online travel transactions has shown many TMCs they need to flatten management structures to reduce costs.
In addition, "margin compression from the global distribution system side and the [airline] override side, [mean] corporate agencies are being squeezed like an accordion," said Innovative Travel Acquisitions president Bob Sweeney, who said his company helped arrange upwards of 13 acquisitions by Navigant "on its way up the ladder" to become the second-largest TMC in the United States.
The rolling up of Navigant, beginning nearly a decade ago, created a regionalized presence in the United States and a profile that is almost the opposite of CWT's there. Under earlier management, CWT not long ago had all but abandoned the on-site offices typically characteristic in mid-sized accounts, but Navigant counts on such clients for roughly two-thirds of its volume. Such accounts are finally ramping up their online usage, creating added pressure for Navigant to cut costs. About 10 percent of Navigant's air volume is driven by very large accounts, while a slew of U.S. government accounts book about 20 percent of its business.
CWT is better known for what Wilkinson called "deep and large client relationships," strengthening the deal's complementary nature. After the merger, CWT would exhibit what Joly called a "balancing" both in client mix and geographic presence.
"The Navigant team (including me) has been trying to sell the company for several years, but the right buyer had not come along until now," said Nulty, who left the company in 2002 and is now a senior vice president with Aloha Airlines. "I think this is a good move for both companies, as there are great people at both of them. With all of the acquisitions Navigant has made, it will be easy for them to reverse roles."
According to the companies' announcements, Carlson Wagonlit Travel will acquire Navigant International for about $510 million in a deal expected to close in the second half of this year. The move coincides with a separate transaction in which JPMorgan Chase & Company's private equity affiliate One Equity Partners and Carlson Companies would, by the end of July, acquire Accor's 50-percent ownership in Carlson Wagonlit Travel for $465 million, with OEP taking 45 percent and Carlson adding 5 percentage points to its existing 50-percent ownership.
The deals are subject to a number of customary regulatory and shareholder approvals.