Navigant International last week said it paid about $775,000 in cash, a $19.5 million short-term promissory note and $10.4 million in Navigant common stock to buy Northwestern Travel Service LP from Northwestern Travel Service Inc. and the Noble Family Limited Partnership.
Northwestern ranked sixth in Business Travel News' listing of the largest U.S. corporate agencies, based on verified 2003 ARC transaction counts
(BTN, May 24). BTN did not receive authorized data on American Express and Navigant, but their claims would rank them first and second, respectively.
According to Navigant, Northwestern in 2003 sold $335 million in airline tickets, incentives and meetings, generating revenue of about $40 million and earnings before interest, taxes, depreciation and amortization of about $6.5 million. Navigant said 70 percent of Northwestern's revenue was derived from corporate travel management, 13 percent from meetings and incentives and 17 percent from leisure travel.
"Subject to contingencies, if Northwestern Travel achieves certain revenue objectives by the first anniversary of the closing, the sellers will be entitled to up to approximately $10.2 million in additional cash consideration," Navigant said. Navigant CFO and COO Bob Griffith last week said the additional consideration relates to Northwestern maintaining revenues, driven partly by client retention. He said Northwestern and its management would be merged into Navigant's Chicago-based North Central region, headed by region president Kelly Kuhn. The acquisition in many ways is consistent with Navigant's prior deals.
"Northwestern has a good base of clients that are loyal because of the size they are and their very hands-on service," said consultant Ralph Brown of R.D. Brown Co. in Lake in the Hills, Ill. "They are perceived as being regional or a little easier to work with than some of the megas and bring in clients in that midmarket range."
Twelve-year Northwestern client Personnel Decisions International of Minneapolis sees the move as an opportunity to expand its scope of travel management to be more global, thanks to Navigant's recent link with TQ3
(BTN, March 29). "We're excited about the change," said global travel management director Mike Krebsbach, noting his company is likely to remain a client. "I was just talking to both companies to find a regional provider for Asia and Europe because outside of the U.S., our program is still fragmented. We need to be able to react to changing dynamics in places like the Middle East or Africa, and with a fragmented system it's almost impossible to know where your people are."
"From a strategic standpoint, this is terrific for Navigant," said industry consultant Mark Walton of Consulting Strategies in Chicago. "It reminds me of their purchase of Arrington in Chicago five years ago. They bought Arrington to establish a position in the Midwest, and this further solidifies their position as one of the major players in the region—and also nationally, to a degree."
Walton said the acquisition is "aggressive," since Navigant paid more than one would traditionally expect, but Wall Street analysts who follow the firm said paying a slight premium for a company this size is not uncommon.
"They're paying a little more than they typically have," said B. Riley & Co. Inc. analyst Ian Corydon. Depending on how much of the $10.2 million in additional payment the sellers earn, the purchase price ranges between 4.7 and 6.3 times earnings before interest, taxes, depreciation and amortization (EBITDA), he said. "Historically, Navigant acquisitions have been under five. But for a decent-size company in a recovering market, you have to pay up a bit."
CJS Securities senior equity analyst Dan Moore agreed: "It's a little higher than some of their past acquisitions, but it's still a reasonable multiple, and it fits perfectly with their strategy of growth in the corporate travel management arena."
Griffith declined to detail the "vendor contract, operational and cost saving synergies" alluded to in the press statement, but Navigant said that even excluding those, it is increasing its financial guidance for the year. The acquisition will "be immediately accretive to our results in the second half of this year, and our finance and integration teams believe they have identified several areas where cost savings can be realized," Navigant said. As a result of this deal, improving corporate travel trends and a meetings-related acquisition revealed earlier this year,
(Meetings Today, June 7), Navigant raised its guidance for 2004 EBITDA to $60 million from $57.3 million.
Among other benefits, this acquisition expands the breadth of Navigant's meetings and incentive management subsidiary, Navigant Performance Group. Northwestern operates an incentive management division and in July 2003 created a subsidiary to enter the corporate meetings consolidation market. That subsidiary, Northwestern Meeting Solutions, uses and distributes StarCite's consolidation technology. NPG, at least in part, uses SeeUthere Technologies, a StarCite competitor, for that function.
The move follows Navigant's February acquisition of Incentive Connections Inc., which was executed to bolster NPG's standing in the corporate, particularly pharmaceutical, meetings market.
Griffith was unable to comment on whether Northwestern would remain a member of the Radius travel agency consortium, though he said existing contracts would be honored. One hundred percent of Northwestern's global distribution system bookings in 2003 were processed through Worldspan, and Griffith did not expect that to change, despite Navigant's equivalent figure of 10 percent on Worldspan. "We use all four GDSs and, Minneapolis being a Worldspan market, we would generally leave that that way," he said. Northwestern is one of Worldspan's five largest traditional agency subscribers.
While it's common for acquired agencies to switch GDSs—often to attain payments from the new GDS provider—Walton said he was not surprised Navigant would stick with Worldspan in this case. "From a client perspective, you have to be on Worldspan if you're in a Northwest Airlines fortress hub," Walton said. "Northwest still has a requirement for clients with whom they are going to have agreements to use the Worldspan GDS. If Navigant wants to maintain the business they had, they'd better maintain Worldspan unless they figure out another way to deal with Northwest. There's still a contractual relationship" between Northwest and Worldspan
(BTN, July 7, 2003), despite the former's sale last year of its ownership in the latter.
Navigant's new proprietary online corporate travel management solutions, now being marketed under the Passportal brand, are connected only to Sabre, which Navigant said processed 70 percent of its worldwide GDS bookings in 2003. Announced last week
(BTNonline, June 15), Passportal is based partly on the Powertrip booking technology Navigant bought last year
(BTN, May 28, 2003). It largely was designed to target the lightly managed corporate space in competition with the online-originating agencies.
Northwestern clients will be invited to use Passportal. Regarding other systems, Griffith said Northwestern already uses tools from Navigant's Aqua Software Products division, and that Northwestern likely would convert to Navigant's data consolidation and reporting platforms.
~Chris Davis contributed to this article.