American Express Global Business Travel’s planned acquisition of CWT will give it an immediate $5 billion increase in sales from the key SME market.
Amex GBT announced its $570 million deal to buy rival travel management company CWT on Monday (25 March) in an acquisition that has already been agreed by both firms’ boards but will face regulatory scrutiny in the US and Europe.
Paul Abbott, Amex GBT’s CEO, said on an investors’ conference call that CWT’s SME clients account for just over one-third of its forecast total sales of $14 billion in 2024. Attracting more SME clients is one of Amex GBT’s key strategic goals.
“When you look at the industry split, they have about 35 per cent of their business in SME so that will bring about $5 billion in additional SME volume across and that grows our SME business by about 35 per cent – so that’s really attractive,” explained Abbott.
Abbott also highlighted CWT’s strong “footprint” in sectors such as energy, mining, marine, large US government and defence business, life sciences, and media and entertainment.
“When you look at the global multinational customer base, they have a really good footprint in some high-value industries,” he said. “We also have a footprint in some of those and it will give us sufficient volumes in those industry segments to really create dedicated verticals for those specific industries.
“Those are verticals we like; they have more complexity and more value, and they tend to have high levels of customer retention and customer loyalty.”
The combined company is forecast to achieve TTV (total transaction value) of around $45 billion in 2024, with one-third of these total sales coming from CWT’s operations. Revenue of the enlarged TMC is expected to be in the $3.28-$3.35 billion range this year.
According to figures released by Amex GBT, the larger company is also forecast to achieve adjusted EBITDA (earnings before interest, taxes, depreciation and amortisation) of between $520 million and $580 million in 2024. By comparison, Amex GBT recorded adjusted EBITDA of $380 million in 2023.
“Adding 4,000 customers will create greater capacity for investment in our software and services,” said Abbott.
“We are very excited about this unique opportunity to grow our business, together with CWT, to deliver even more value to our customers and our shareholders.”
Regulatory hurdles?
Morgan Lesné, a travel technology M&A specialist with France-based investment bank Cambon Partners, called Amex GBT’s purchase of CWT a “volume play” within the corporate travel sector.
“Size is the only way to make economies of scale and get to relevant levels of profitability,” said Lesné. “The acquisition will put increasing pressure on the likes of Travelperk and Navan, both of which will have to fight even harder to get to that level of scale that a giant like Amex GBT-CWT is about to become.
"More generally the deal is yet further proof that 2024 will turn out to be the biggest ever year for M&A in the travel technology space.”
Lesné described the deal as a “midsized transaction” within the wider global travel sector, which should help it to clear regulatory hurdles both in the US and Europe.
"These are not the typical giants the antitrust authorities are after," he said. "The EU Commission probably has better things to do than try to regulate midsized transactions. Although it makes a lot of noise in the market, in terms of size, it is quite modest."
Lesné said he expects there will be "some investigation" by regulators and "commitments with regards to employment" on the path to consolidation, but he is hopeful the deal will be approved.
Former American Airlines executive Cory Garner, who now runs his own consultancy, also said he did not expect any major challenges to the acquisition by competition authorities in a LinkedIn post on Monday.
“There will certainly be some raised eyebrows among airlines, hotels, smaller competitors and large multinational corporate travel clients, since the largest legacy TMC by far is acquiring one of its only global competitors,” Garner said in the post.
“However, in our view, it is too difficult to narrow the market's definition to only the global, legacy TMCs. The corporate travel management market has seen new entry from next-gen TMCs like Navan, AmTrav, TravelPerk, Spotnana and others and is under new pressure from airline distribution strategies to attract corporate travellers to their own website."
Even so, Garner questioned whether the acquisition is a good business move by Amex GBT, especially given ongoing challenges to the legacy TMC model, which is based on commissions and global distribution system (GDS) incentives.
He said a combined Amex GBT-CWT would not necessarily continue to grow at the same pace as the two TMCs had been doing independently.
"Implicit in this assumption is that nearly all CWT clients will be happy to remain with GBT through a potentially messy transition, notwithstanding the possibility that at least some of them chose CWT precisely to avoid GBT," added Garner.
Eric Bock, American Express GBT’s chief legal officer, corporate secretary and global head of M&A, told investors that he was “confident the transaction will close” in the second half of 2024.