The month of May opened with a trio of major travel management company acquisitions announced over three consecutive days. On May 4, American Express Global Business Travel disclosed plans to acquire Expedia’s Egencia corporate travel division, which would combine two of the five largest global corporate TMCs. That megadeal was book-ended by two other major TMC moves: Frosch International Travel’s purchase of Valerie Wilson Travel a day prior and TripActions' acquisition of Reed & Mackay, announced May 5.
More deals surely are on the way as legacy providers seek to bolster their competitive positions and newer entrants with deep reserves aim to make a splash. The post-pandemic TMC landscape now is coming into view—and it’s looking like unchartered territory.
Not Just Business Travel as Usual
The prospect of an Amex GBT-Egencia tie-up makes sense on its face for GBT, which for years has been looking to strengthen its midmarket offerings. Folding Egencia under its umbrella, the joined company would come out swinging post-pandemic with a new sweet spot for programs with air spend in the $3 million to $15 million range. This may be an increasingly large number of programs, courtesy of Covid-19, which has opened wide the door to digital meeting alternatives to what once was face-to-face interactions.
The technology play for Amex GBT is clear as well. The TMC declared its appetite for travel tech innovation in 2016 when it acquired travel and expense platform KDS, including its Neo booking tool. While the Egencia platform and brand will remain a discrete offering under GBT, the tech teams will work together to mutually enhance capabilities.
Both the midmarket aspect and the technology focus will be pillars of growth for GBT’s future. According to the May 4 announcement, "with both the Egencia platform and GBT’s Neo Technology Group, the business would be positioned to build the best solutions for the future of business travel."
CEO Paul Abbott underscored the midmarket and technology aspects of the deal for GBT, which currently services more BTN Corporate Travel 100 companies than any other TMC.
"In many other industries, companies have a range of products. I don’t think TMCs have to be one-size-fits-all," Abbott told BTN portfolio-mate The Beat, adding that the company plans "to invest in the Egencia platform and the Egencia team and really grow it aggressively as an additional solution to our clients."
Should the deal go through, Expedia would become a shareholder in Amex GBT, taking about a 14 percent ownership valued at $750 million—a detail the company disclosed this month during its first-quarter earnings call. It also would cement an expanded and long-term relationship on the hotel content side through Expedia Partner Solutions that stands to generate $60 million, according to Expedia CFO Eric Hart.
Expedia CEO Peter Kern said the prospect was "very exciting" for the company, and would achieve simultaneous goals, distancing the company from actively supporting corporate travel clients by "simplifying" its business and divesting its TMC operation, but still generating revenue from what would be Amex GBT’s jumbo-sized volume in the B2B market should the deal go through.
Deal Deluge
Expedia projected the Amex GBT-Egencia deal would close within nine to 12 months. It represents one, albeit a major, deal among several already completed in 2021. And the range of providers involved in those deals—encompassing enterprise mainstays, long-established midmarket specialists and tech-forward, venture-backed startups—offers evidence that the trend toward consolidation is occurring at all levels of the TMC market.
Along with Frosch’s recent tie-up with Valerie Wilson Travel and TripActions'play for Reed & Mackay, Amex GBT purchased Ovation Travel Group in January. In the same month, Europe-based TravelPerk acquired U.S.-headquartered NexTravel, and Direct Travel carved out Short’s Travel Management’s corporate portfolio. Those deals continued strong TMC consolidation momentum from 2020, which saw Corporate Travel Management’s deal to nab Travel and Transport as well as Frosch’s acquisitions of Luxe Travel, CorpTrav and a majority stake of Plaza Travel.
While the movement toward consolidation has been widespread, the motivation behind each deal isn’t one-size-fits-all. Instead, dealmakers have cited a variety of driving factors. Amex GBT’s play for the midmarket is clear, while TravelPerk aimed mainly to increase its U.S. footprint by taking on NexTravel’s 700 U.S.-based clients. Meanwhile, TripActions named Reed & Mackay’s high-touch/VIP specialty as filling a gap in its own traveler-centric, tech-based platform; servicing the high-touch segment also was a key capability of Ovation, according to GBT.
Frosch’s recent string of acquisitions was centered around the TMC’s long-running strategy of acquiring providers with similar or complementary client portfolios and connecting those clients to Frosch’s tech infrastructure and end-to-end service model, which includes consulting arm TCG Consulting.
That strategy has been kicked into overdrive amid Covid-19, and the financial strain the pandemic has placed upon many TMCs that saw booking transaction revenue slow to a trickle with the shutdown of nearly all corporate travel.
"We [predict] 30 percent of agencies will be in trouble, either not able to survive the pandemic or not able to put the investment in that is going to be required to manage post-pandemic protocols" and associated costs, said TCG CEO Albert Taras. "That’s not anything we’re happy to put out there, but it’s a reality."
With the exit of those providers from the market leaving their clients adrift—and other buyers re-thinking their travel programs from top to bottom—TCG expects a surge in demand for travel management services as travel ramps back up.
"Sourcing of agency services will be the headline by the end of August," predicted Taras. "We think it’s going to be crazy the number of people who are going to be fundamentally rethinking their agency [strategy]."
By bringing new corporate clients into the fold now via TMC acquisitions, Frosch is positioning itself to fulfill that pent-up demand when the time comes, according to Taras. "Frosch is not only acquiring companies but acquiring clients … and that diversification is going to allow us to come out even stronger," when travel returns, he said.
And Frosch’s recent spurt of deal-making may not be done; earlier this year, it landed a minority equity investment from EagleTree Capital, funding that could be leveraged for additional future acquisitions, noted the TMC.
Feeling the Squeeze
M&A activity of course is not a new trend in travel management, especially in the middle market, said Innovative Travel Acquisitions president and CEO Bob Sweeney, who noted that the trend toward consolation dated back more than three decades.
What is new: the dual pressures of Covid strangling revenue for many TMCs while a broader shift in client demand necessitates platform and technology investments many mid-market agency owners aren’t interested in making. For those owners, especially those closer to retirement age, it may simply not be worthwhile to try to keep up with newer, and deeper-pocketed, competition, according to Sweeney, who helped broker CorpTrav’s sale to Frosch as well as the Direct Travel deal for the Short’s corporate portfolio.
"Going forward in the new world, you have to either be tiny or huge. I don’t think you can be in-between anymore," said Sweeney. "People who have nice, well-run businesses, but maybe not the technology that you’re going to need [to compete] … have to decide if they want to make that investment or if they want to sell."
As long as there are potential buyers circling, that may not be a difficult decision to make for many owners, Sweeney added, predicting "a lot of transactions over the next two to three years" as such owners decide "if you can’t beat ’em, join ’em."
Those who do sell won’t have a great deal of leverage around pricing while uncertainty lingers around the pandemic’s lasting effects on corporate travel activity, said Sweeney—but the broker does see a definitive inflection point at which the pendulum could begin to swing back in sellers'favor.
"It’s clearly a buyers'market now, but that will shift once the sellers can point to 2022," Sweeney predicted. "In the first quarter of 2023, that’s when you may see it start to shift a bit back to the sellers," provided travel has seen a strong bounce-back.
Sweeney said the long-term effect of the pandemic on the industry would be a largely hollowed-out midmarket segment. "When you look at the top 50 list [of TMCs], I’m thinking numbers 45 through 50 are going to be pretty small," he said. "The middle is disappearing before our eyes."
New Money, New Models
TripActions'acquisition of U.K.-based Reed & Mackay was notable not just for joining what some might consider opposite ends of the travel management spectrum—the mobile-centric, traveler-directed ethos of TripActions and the white-glove, bespoke service of Reed & Mackay—but also for being the first-ever acquisition made by TripActions. Despite racking up a total of about $1.3 billion in funding since its 2015 founding, the company previously had devoted those dollars to innovation and R&D, organic growth and a sizable war chest.
TripActions was mum on further potential deals. But in January, in connection with its most recent funding round of $155 million, founder and CEO Ariel Cohen said TripActions is "always looking at the market and potential growth opportunities."
Another newer, tech-centric travel management provider, TravelPerk, has been more forthright about its intentions to deploy its own stock of investment capital on acquisitions. After securing a $160 million series D round in April to bring its total investment funding to nearly $300 million, the company said it was eyeing opportunities to follow up its purchase of NexTravel by acquiring other companies in the travel management space.
Discussing those plans, TravelPerk chief commercial officer Jean-Christophe Taunay-Bucalo cited the current transitional state of the corporate travel industry as a "moment when, more than ever, we want to be aggressive" in order to create "a big gap" between TravelPerk and its competitors.
But those competitors aren’t standing still, and many are eyeing their own growth opportunities.
Those include TravelBank, which thus far has opted to partner with TMCs rather than seeking to acquire one. The Silicon Valley-based company last year launched an initiative to expand its distribution footprint beyond the straight-to-client model. That push thus far has included deals to build customized versions of its travel management platform for TMCs including Adelman Travel and World Travel, along with a distribution pact with lightly managed travel booking specialist Upside Business Travel.
Meanwhile, Emburse—the expense management conglomerate whose platforms include Chrome River and Certify, among others—in March acquired travel app developer Roadmap and spending data analytics specialist DVI. Those purchases expanded Emburse’s capabilities to provide two services often fulfilled by TMCs, and which the company expects will be emphasized post-Covid.
And as for traditional TMCs seeking to retool for the post-pandemic era, acquisitions aren’t the only opportunity. Some have doubled down on in-house innovation, including FCM, which is preparing to unveil an entirely retooled, omnichannel booking platform as the TMC targets a 50 percent recovery in its business travel sales activity by year-end.
Disintermediating third-party online booking tools in favor of originating bookings through their own proprietary channels, particularly their mobile apps, will be a key priority for TMCs over the near term, said GoldSpring Consulting partner Will Tate.
Doing so will enable those TMCs to avoid having to pay booking fees to third-party OBTs, while offering greater control over their clients'booking experiences—two goals TMCs long have sought.
"Simply put, a poor OBT experience is often attributed, wrongly, to the TMC," said Tate. "And TMCs have yielded customer control and cost management to the OBTs, without much ability to impact either."
Mobile app-originated booking would empower TMCs to control the customer experience, related costs and determine which fulfillment channels are used to book individual segments, while creating "one more revenue stream to offset the supplier-to-TMC revenue upheaval related to the pandemic," Tate said.
Of course, with the post-pandemic travel era all but certain to bring with it significant competitive consolidation and radically revamped service models in the TMC ecosystem, it ultimately will be up to clients to decide what approach—and what provider—works best for their own particular needs as their programs get up and running again