BBT asks a travel buyer, a consultant and a TMC about the ramifications of the mergers and acquisitions activity that was prevalent last year
The traditional view is that mergers and acquisitions can reduce competition, give some players undue amounts of clout and work against the interests of the customer in the marketplace. Do these comments apply to the heightened activity in the TMC sector, where other factors such as economies of scale, culture and areas also come into play?
Our experts share their own interpretations:
The buyer: Ryan Taylor, global travel manager, Wood
Consolidation is not a bad thing. Pulling together huge TMCs can mean taking the best of both companies, so they will be more innovative. What some lack in certain areas – meetings & events, for example, they acquire. It’s a positive these companies can come to buyers collaboratively to offer enhanced services.
I don’t think prices will rise because either you pay a management fee or nowadays, a transaction fee, so you pay for the services you want, whether that is high-touch or online booking tools, you pay for that regardless.
Because Wood globally acquired Amec Foster Wheeler, we’ve now got a lot of agencies, so we are consolidating our programme and we are doing that with American Express GBT which now has HRG, which, in turn, has good technology.
We are also using consultants from the GBT side for some of the tenders we are running and HRG consultants for others; there is definitely a complement of strong knowledge of the industry and technology, which is a good thing. Whether you go to a TMC or an independent, there will be consultancy costs regardless of whether there are fewer TMCs.
I would be interested to hear from buyers why they think there is going to be a lack of competition. Before the acquisitions, if you ran an RFI (request for information) and went to eight TMCs to get that down to four, you would only be negotiating on transaction fees or the consultancy services they can provide, so what is the difference? Even with fewer TMCs, if you get the fees down, it will have a knock-on effect on your service. I don’t see why my travel should cost more as a result of consolidation because I pay for the transactions it takes to run the programme.
The consultant: Chris Pouney, director, Severnside Consulting
Consolidation in the TMC sector is a concern, and is causing a lot of discussion among travel buyers, who at first may think of it only in terms of reduced competition, higher prices and less innovation.
However, while the annual BBT 50 Leading TMCs listing is still the starting point when companies begin to search for a new TMC, consolidation does allow new entrants into the top 50, and sees others rising up the list. Therefore it’s a good opportunity for these companies to make a name for themselves.
Some TMCs are buying a particular expertise, such as when a major TMC bought two leading meeting & events providers recently. There is a technology angle as well: TMCs acquire competitors with their proprietary technology, such as online booking and back office – it is not just about the frontline travel servicing staff. It is worth looking at what you are buying. By purchasing a TMC, the buyer will acquire technology, staff, a client book and goodwill.
A TMC can grow organically, of course, and pick up clients one by one or they may choose to do it in one go, but that business could walk at any time.
Looking at cultural fit puts buyers in an interesting position. Clients of an acquired TMC may have more reason to be comfortable about that takeover than clients of the acquiring company – the purchaser will absolutely not want to lose any of the clients from the acquired business.
These events are incredibly disruptive; there are culture clashes and people get entrenched in their positions. It takes years for companies to come together as one after a merger or acquisition.
From a buyer perspective, all this activity is a risk, but for those TMCs that are a bit smaller, it is a really big opportunity; they should be beefing up their sales teams and strengthening their marketing and messages because they could find themselves being invited to a lot more RFPs than they would have done.
RFPs typically only function when you’ve got five, six, seven interested parties and, if they’re all merging, you have to look further down the list to find them.
The TMC: Paul East, chief operating officer, UK, Europe & Americas, Wings Travel Management
Companies are increasingly reviewing their options. For some owners it is a desire to sell and for others there is a requirement to grow to get economies of scale, be that for strategic growth in a sector or entry into a new market. I think most are for economies of scale, but a few have been to secure new product or technology; whichever way you look at it, consolidation will continue.
Considering the cultural fit when undertaking mergers and takeovers should be a key part of any due diligence, both by the buyer and seller, to aid integration, although I fear when there are external influences (venture capitalists), they do not pay so much attention to this. From monitoring some of the recent acquisitions and talking with colleagues in the industry, I think some will run smoothly while others will cause disruption, which could impact clients.
However, I don’t think competition will push up prices; there is still such a wide spectrum of TMCs in the marketplace for companies to work with and they offer different products and solutions.
Some of the activity is the coming together of TMCs of a similar size, but BTD and Gray Dawes have also acquired smaller businesses and I can appreciate the merits of both strategies.
To make a difference in the mega TMC pool, you would have to acquire numerous smaller TMCs and that would mean running multiple integration projects concurrently, which is time-consuming and labour intensive. Most recently, our acquisition strategy has been overseas, but Wings Travel Management will continue to look for the right business fit to acquire.