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Further developing its acquisition strategy, TRX last week said it would buy data consolidation and reporting rival Hi-Mark Software in a roughly $20 million deal expected to close next month.
The two Atlanta-based companies said that after the closing, they would "integrate their operations and develop joint product plans by March 31," bringing data consolidation and reporting tools under the Datatrax brand. In an interview with Management.travel, TRX president and CEO Trip Davis said it remains to be seen which products would be integrated and how, but promised the emerging entity would be careful.
"You clearly want to make the most of both teams, and there are a lot of things Hi-Mark does that TRX doesn't do, and there are a number of things that are a direct overlap with our Datatrax offering," said Davis this week. "We will create a roadmap for both the people and the products and bring clarity to that for the corporate buyers in the first quarter."
In general, TRX's data consolidation solution involves taking data exported from different back-office systems in multiple formats, whereas Hi-Mark installs software in the back-office environment. "That's something that is very attractive to TRX," Davis said. "It adds a lot of automation to the process and is really savvy technology."
According to the TRX press announcement, "the two companies will continue to support their clients through the end of this year under their respective company and product brands." However, Davis clarified that this does not mean Hi-Mark clients would lose support at year-end: "Kevin [Austin, Hi-Mark president] and I have made open and personal commitments to all of our clients that they will run on existing technologies and it will be business as usual until we approach them about a migration path, if any."
Travel Tech Consulting's Norm Rose described the deal as TRX "reaching down to a lower part of the market that wasn't being handled. It fills in the rest of the market, though in the last four or five years, Hi-Mark had created quite a market presence in corporate. It does eliminate a big competitor."
"TRX, despite having data consolidation tools, didn't have market dominance," said TRW Travel Consulting president Tom Wilkinson. "This is a pretty neat strategic fit for them as Hi-Mark has established a pretty definite position as the leading provider of reporting systems" to consolidate data across different countries and currencies.
Former TRX executive Steve Reynolds, now vice president of technical solutions for Management Alternatives, said one challenge is that TRX now has two reporting systems, "one low end and the other high end." Reynolds also said Hi-Mark's pricing had been surprisingly low and asked, "How did they justify this big [acquisition] price?"
Other direct or indirect rivals include Cornerstone Information Systems, Prism Group (which generally limits its work to large corporations and airlines), CrossFire Systems and Trondent Development Corp., although many corporate agencies also develop their own homegrown or, at least, private-labeled applications. Just this week, JourneyCorp Travel Management and Travizon announced new versions of their respective reporting tools.
"I wouldn't say there's 'a lot' of competition," said Tower Travel Management president John Smith. "But there are lots of homegrown tools. We're not looking to replace our fleet of reporting tools, but are definitely already down the road of developing custom reports."
"In the space, the two of us were winning most of the business," said Austin of TRX and Hi-Mark.
But a large number of travel management companies also uses Cornerstone's iBank product. Cornerstone president Mat Orrego weighed in on the news: "Clearly the acquisition of Hi-Mark is a great way to capture market share. It also comes with hidden costs, such as integration of technology, corporate cultures and customer service. Having acquired three technology companies in the past six years, I understand the effort required to make these mergers successful. We also learned that mergers have the potential to slow down the process of innovation."
Austin and Davis suggested they know where their limits lie. "Integrating code bases from different companies is usually not a good idea and is probably something we don't want to get into," said Davis. "It's better to pick the right products and the right path forward, and keep things as clean and simple as possible."
"Because of the way our systems are designed, in a modular capacity, we have a unique opportunity to take from the best of both companies," said Austin.
As part of the deal, Davis said TRX "made a long-term commitment" to Austin, Hi-Mark COO Tim Fahy and vice president of product and marketing Todd Kaiser.
According to a Securities and Exchange Commission filing, TRX will "acquire substantially all of the assets of Hi-Mark and assume certain of its liabilities ... [for] an initial payment in cash of $10 million and ... 500,000 shares of TRX's common stock at the closing." TRX also agreed "to make contingent payments not to exceed $12 million based upon future revenues of certain accounts," and to issue Hi-Mark a $7 million promissory note.
TRX said 13-year-old Hi-Mark has "approximately 175 clients supporting more than 1,000 companies around the world through its suite of data acquisition, data quality improvement, email notification, and business intelligence and reporting applications." Hi-Mark serves corporations, agencies and airlines, as well as financial services and healthcare companies.
TRX in August announced the acquisition of procurement services firm Travel Analyticsafter Davis earlier this year discussed acquisition plans. He said this week that acquisitions remain a component of the company's growth strategy.
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