Deborah Potts, director at business growth, mergers and acquisitions specialist Summit Advisory
Deborah Potts is director at business growth, mergers and acquisitions specialist Summit Advisory and was lead advisor on the acquisition of the UK’s Norad Travel Group by Israel-based Talma Shlomo Travel Solutions at the end of March. She told BTN Europe about the deal and wider trends in mergers and acquisitions among travel management companies.
Business Travel News Europe: You were the lead advisor on the Norad-Talma deal. Tell us more about the nature of it from your perspective.
Deborah Potts: It’s important to distinguish between quality deals versus distressed deals and it’s often not apparent from headlines which are which given the confidential nature of transactions. The Norad-Talma deal was very much a quality deal stemming from Talma’s strategy to gain a footprint in the UK and a firm foundation from which to grow further. In our view, it would not have served Talma’s interests to acquire a distressed business and inherit all manner of problems from day one of entering the UK market.
BTNE: How did the deal occur?
DP: Norad was already a trusted, sound and highly reputable business partner of Talma. We knew both CEOs and very much saw this union as a marriage made in heaven, so [we] initiated formal deal discussions. We were delighted for both parties to complete the deal.
BTNE: Looking at the wider M&A landscape for travel management companies, what have you seen more of over the last couple of years – the ‘quality’ deals or the ‘distressed’ deals?
DP: During the last two ‘Covid years’ there have undoubtedly been more distressed deals than quality deals that we have heard of. Existing UK players and even the occasional new one have sought to shore up their own trading and futures by opportunistic acquisitions of distressed businesses. Sadly, these rarely represent real value for sellers but may mean survival in some form, or even just a job.
BTNE: What’s the outlook in this arena?
DP: Looking forwards, we do now feel that some genuinely healthy momentum is returning to the business travel M&A market. It’s still early days but we are witnessing an increasing number of well-capitalised buyers contacting us with credible and compelling reasons for growth by acquisition. I must say that most seem to be headquartered overseas. Tech-driven players are usually private equity backed and are very much looking to the future as they view it. More traditional TMC players have probably also had to undergo additional capital raising to both see them through Covid and to ensure funds for their own ‘buy and build’ expansion strategies. The so-called ‘dry powder’ – the capital – is out there and is seeking the right investments. Deals fuel deals.
BTNE: Who’s behind the capital?
DP: Most deals we’ve seen are backed by private equity, but not all. What most buying companies do have in common is a strong vision for their own future and clear strategic goals beyond the immediate Covid-19 crisis. Most importantly, they have the cash reserves, or access to cash, to implement their acquisition ambitions. We’re not talking here about vultures waiting to swoop down and devour distressed travel businesses – although these are certainly out there and hovering. Rather, [we're seeing] quality travel businesses looking to their own future exits in three to five years’ time for which a ‘buy and build’ strategy makes perfect sense.
BTNE: Presumably acquisition prices are deflated in the current environment?
DP: Serious buyers appreciate that if ever there was a case for an ‘exceptional’ adjustment in relation to profit performance, it is Covid-19. Potential sellers should rest assured that buyers that have identified their business as a good strategic fit will make allowances for Covid’s hit on their numbers. We certainly we do not anticipate any record-breaking multiples for travel business disposals right now unless there is a compelling ‘travel plus tech’ story at play. This doesn’t mean that good prices cannot be achieved for quality businesses that have a history of successful trading pre-Covid 19. Of course, the best driver of price, a favourable deal and payment terms, remains competitive tension. That’s as true now as it ever was.
BTNE: Has or when will the UK’s TMC market ‘right size’? It has long been considered overpopulated in the UK.
DP: This is difficult to predict. The destiny of the sector is in the hands of those players that adapt best to their customers’ evolving business travel needs and, of course, business travel is intrinsically linked to the strength of UK PLC – our entrepreneurs and business community.
BTNE: Talking of adaptation, will it be a case of survival of the fittest – particularly with regards investment in technology?
DP: Covid has fast-tracked or prompted the invention of more technologically driven changes for business travel management but, on the other hand, many TMCs are also reporting that there has never been a greater need for a reassuring human being at the end of that phone to effect last-minute changes and manage often complex travel itineraries. The importance of long-standing trusted TMC customer relationships has never mattered more, they say.
I do think there will be more consolidation in the marketplace as some owners are intimidated and overwhelmed by new technology entering the arena, from new payment systems to carbon emission reporting and more. They fear they are unable to adapt fast enough to remain competitive, let alone believe they are able to afford it post-pandemic or, frankly, have the mental energy to embrace it. But other TMCs who do what they can to ensure they are future-proof and adapt will survive and we will even see new entrants. Certainly the business traveller of the future will not be the business traveller of today – and this applies to TMCs too.