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While most of its peers slash costs and hunker down, Corporate Travel Management (ASX: CTD) has its eyes set firmly on expansion through the acquisition of one of its largest counterparts in the US.
The Brisbane-headquartered company announced this morning it would be raising funds for the US$200.4 million ($274.5 million) acquisition of Travel & Transport, Inc, a leading US travel management company that also owns hotel program operator Radius.
Travel & Transport (T&T) is based in Omaha, Nebraska, the home of famed investor Warren Buffet. But only time will tell whether this bold move in a time of travel industry crisis is a value investment.
After reporting a loss that was relatively minor compared to its peers, Corporate Travel Management (CTM) had $55 million cash in the bank as at 17 August in addition to comfortable lending facilities for the medium term.
But now CTM plans to raise $375 million, not only to fund the acquisition and associated costs but also to withstand potential losses from the target company for a "prolonged period".
CTM is currently operating at 25 per cent of last year's volumes and reported a loss of $8.2 million for FY20. However, Travel & Transport has been processing just 13 per cent of last year's volume and ran at a monthly loss of $5.7 million over July and August.
Meanwhile, average pro-forma group cash burn was $7.5 million per month for the US group.
CTM is willing to look past the current troubles and sees a "compelling strategic rationale" for the acquisition, which would strengthen its position as one of the leading mid-market corporate travel managers in the world with $10.8 billion in total transaction value (TTV) and North American TTV of $5.2 billion.
T&T also has around 10 per cent of its income coming from Europe, and overall its customer mix has been described as highly complementary to CTM, with a focus on professional services and healthcare clients.
The executive team at CTM is also upbeat about the enhanced offering they can provide to clients through Travel & Transport's Radius business, which has partnerships with prominent global hotel brands in 160 countries.
"We are excited to bring our two companies together under the CTM umbrella," says CTM founder and managing director Jamie Pherous (pictured).
"Travel & Transport has an incredible reputation and a long history of success within the global travel industry, and we have shared views about delivering personalised service and proprietary technology to generate strong returns for clients on their travel investments."
All key T&T executives including CEO Kevin O'Malley have announced their intentions to invest in Corporate Travel Management stock.
"Travel & Transport has been in business for 74 years, growing from a one-person operation in Omaha, Nebraska, to one of the largest corporate travel management companies in the US," says O'Malley.
"We are excited about the opportunities for our people and our clients by becoming part of a growing, world-class travel management company.
"We were very impressed with CTM's technology, in particular the Lightning online booking tool, and CTM's strength in the Asia Pacific region. CTM will be a great place for our employees to call home."
Under the group's entitlement offer, eligible Corporate Travel Management shareholders will be able to subscribe for one fully paid ordinary share for every 4.03 shares they already own, at a price of $13.85 per share.
This represents a discount of 14.3 per cent to the last traded price of $16.16 on 25 September.
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