It is nearly a
year since American Express Global Business Travel announced its $570 million
acquisition of CWT – a deal it hoped to conclude in the second half of 2024 –
and the two TMCs are still in limbo.
A major
hurdle could be removed later this week when the UK’s Competition and Markets Authority
decides whether to let the acquisition proceed. One thing that has become
clear during the CMA’s investigation is CWT’s declining position which has been
exacerbated by the CMA and US Department of Justice’s respective decisions to assess
the deal, thus delaying the TMCs’ consummation. What began as a
strategic acquisition has turned into a rescue mission.
The deal looked
to be in danger until an unexpected U-turn from the CMA a fortnight ago signaled a shift in its trajectory. Initially
opposing the merger over competition concerns, the regulator is now expected to
grant final approval, in no small part due to CWT’s deepening financial fragility.
While CWT
was not officially on the market, its precarious financial situation has long
pointed to it being acquired. In 2021, the TMC filed for Chapter 11
bankruptcy in the US, and by late 2023, a recapitalisation plan reduced its
debt by more than $450 million.
At the same
time, the TMC implemented a raft of measures to stabilise the business, which
one commentator said created the perfect storm. “There were big capex cuts, our
technology stagnated and there was little strategy. We had an agent-led
business so when customers started leaving the headcount cuts accelerated. When
you do all that, the customer experience declines and retention slips,” a
recently former senior employee of the company told BTN Europe.
The loss of its largest customer, Amazon, to BCD
Travel in 2023 was a severe blow for CWT, said the source, while other large
businesses have followed its departure. “Any goodwill [among clients] was
running out – big corporates want stability. Winning business [at the moment]
is out of the question and more and more RFP cycles are coming up too.”
Since 2019, CWT’s headcount has been slashed from
19,000 employees worldwide to around 9,000 today, they added. “The acquisition
would be the saviour of the skeleton crew that’s left. It has become a rescue
mission.”
Meanwhile, Martin Warner, principal at MW Travel Consultancy – and a former CWT
EVP some ten years ago – says: “The pandemic triggered something that was
inevitable for CWT given the structure of the company and the debt it had
carried. The business has been damaged over time and Covid was the tipping
point.”
Warner adds: “Since then it’s been an almost
impossible task to restructure, to get the cash flow, and get customer
confidence. Does CWT have much of a financial runway? Have the existing
investors reached an agreement to provide additional working capital funding
until the DOJ case is resolved? The longer this goes on, the surer the case
that this is a rescue mission.”
AN UNEXPECTED U-TURN
CWT’s
financial uncertainty was a key focus of the CMA’s ‘supplementary interim
report’ published on 18 February in which it declared the deal should
provisionally be allowed to proceed. It had previously opposed the acquisition
primarily on the grounds of a “substantial lessening of competition” for large
corporates.
Its U-turn
was based on new client bidding data which revealed CWT’s struggles to win and retain
business, a reassessment of its competitor set, and additional financial information.
The CMA’s chair of the investigating board, Martin Coleman,
said in the report that it had “provisionally
concluded that CWT is a significantly weaker competitor than in the past and is
likely to continue to weaken in the future.”
As reported
by BTN Europe stablemate The Beat, Amex GBT has argued that CWT qualifies for a
‘failing firm’ defense (link requires subscription), reinforcing the case for the merger. The parties have
also urged the US regulator to fast-track its case to May, but it remains
scheduled for September.
Martijn van der Voort, owner at AstraNomad and former
director of online product delivery at CWT, says the CMA’s conclusion “now
acknowledges something of magnitude: CWT cannot sustain itself much longer.”
“This merger must happen, not for shareholders
or its leadership team, not for corporate strategy, but for the long-suffering
employees who have given everything and much more to keep CWT afloat,” adds van
der Voort, who left the TMC last year.
Prior to
the CMA’s U-turn, business travel industry consultant and advisor Patrick
Diemer had written in a Company Dime Op Ed that the deal was “falling apart”
under the scrutiny of the CMA and DOJ.
In
correspondence with BTN Europe, he noted the CMA’s new findings were almost
exclusively based on the weakness of CWT as a competitor, downplaying the
market impact of the acquisition.
“The CMA
seems to ignore the resulting structure of the market after the merger – it is
still the number one [TMC in the market] taking over number three, and number
one will be much stronger by doing so,” he said.
Although
exact details of the TMCs’ bidding data were redacted in documents published
online, Diemer estimates that around 80 per cent of all new business deals, including
renewals, were landed by the top four TMCs: Amex GBT, BCD Travel, CWT and FCM.
On the flip
side, less than 20 per cent of new contracts are awarded to CTM, Navan,
Spotnana and the many other alternatives combined. “It seems bold for the CMA
to conclude that these smaller competitors are expected to exert increased competitive
constraints in the future,” said Diemer.
He also
highlighted the somewhat arbitrary nature of the CMA’s verdict where a majority
conclusion is required by the investigation’s four-person panel, meaning just
one person could have changed their view and altered the course of the deal. “It’s
probably less of a drastic U-turn than one might think,” says Diemer.
A
PROTRACTED PROCESS
Some industry
insiders argue that the regulatory scrutiny may have been unnecessary from the
outset. “The CMA’s change of heart surprised me, but it surprised me there was a
referral in the first place,” says Martin Warner.
He is not alone in pointing out
that investigating authorities are typically starting from a position of having
zero or little knowledge of the companies and verticals they’re assessing.
John Harvey, managing
partner at Globalyse, says: “The CMA spent two months educating itself about a business travel sector it
did not understand sufficiently and was no doubt blinded by the names of
customers and the scale of travel expenditures involved.”
Harvey continues: “It should have focused on
the actual role and much smaller revenue flows of the intermediary travel
agencies themselves but it remained focused on the bright lights of travel
volume and built an initial case around that.”
For Amex GBT, a principal objection to the CMA’s investigation was its focus on – and definition of – global
multinational customers (GMNs), which the CMA describes as companies with more than
$25 million in annual total transaction value. The TMC argued that such
companies do not constitute a distinct market with unique requirements and that
their needs are substantially similar to those of SMEs.
Warner is
in agreement, saying the scope of the CMA’s investigation was too narrow.
“Looking at the history of mergers and acquisitions, the last thing you want is
a narrow scope. If there’s going to be one [an investigation], it needs to be
as broad as possible.”
John Harvey, who was CMO at HRG
when it was acquired by Amex GBT in 2018, also questions the CMA’s decision to put
its new, in-depth Phase 2 investigation process to the test.
The CMA celebrated
its revised merger inquiry process in its first interim report published in November, claiming greater efficiency and deeper
engagement, and enabling it to make its provisional decision “earlier than under the old process”. But in January the CMA pushed its decision deadline back by six weeks and by
February had changed its position on the deal altogether.
Harvey says: “Fortunately,
although adding another six months to the process, this independent study found
what the CMA themselves couldn’t see – that there is no case to answer. It is
just a crying shame that it has taken nearly a year and caused so much stress
and uncertainty for the CMA to arrive at this conclusion.”
WHAT
HAPPENS NEXT?
While the CMA is due to deliver its final decision by March 9, the DOJ’s
involvement remains a wild card. Some speculate that a change in US
administration could shift the DOJ’s stance.
The timing
of the DOJ’s original concerns, filed under the Biden administration – which
Amex GBT argued was “politically motivated” – has led to speculation about
whether a Trump administration could take a different view. A prolonged DOJ
review could test Amex GBT’s patience and willingness to proceed, especially as
the value of CWT continues to deteriorate, other commentators suggest.
“The DOJ will likely observe the CMA’s
considerations in detail,” says Patrick Diemer. “But it remains completely
speculative as to whether DOJ will change course. The DOJ’s case was launched
under the Biden administration – will the Trump administration care enough to
change DOJ’s course in this case?”
Martin Warner ponders whether Amex GBT is even prepared to wait for the DOJ. “It
was an attractive price at which they agreed to buy CWT, and they may think the
prize is still valuable and worth waiting for at that price. But if the
deal is blocked, or they walk away and pay a break fee, what happens to CWT at
that point?”
ALTERNATIVE
AVENUES
In the eventuality that the deal falls through, commentators have been lining
up to pair CWT off with another suitor.
Norwegian TMC
Berg-Hansen contended in its response to the CMA’s investigation that CWT will
have developed a ‘Plan B’, as should be expected of prudent shareholders. “To
use CMA’s own words: ‘It is likely’ that the owners possess the capacity and
the will to strengthen CWT’s competitive position in that scenario,” it wrote in its objection to the CMA’s change of direction.
Navan, TravelPerk
and Emburse have all been floated as potential buyers, with BCD Travel ruled
out on the likelihood it would face the same regulatory processes encountered
by Amex GBT.
Both Patrick Diemer and
Martin Warner see a Steve Singh-led vehicle as a good fit, although a source close to
the matter insists the Madrona investments
managing director and Spotnana CEO was behind an offer to buy the TMC in the
autumn of 2023.
“I’d like
to think that Steve Singh could still be an alternative buyer and really take
CWT’s global capability and build an international network for Direct Travel,”
says Warner. “That would make a lot of sense. It would bring an inhouse global
distribution capability for Spotnana and for Troop. That for me would be the
logical alternative.”
Some
industry observers believe a breakup of CWT’s business segments – such as its
military and government division (CWT Sato) or its meetings and events unit – could
yield greater returns than a full-company sale, but do its investors have the
patience for that?
“You’ve got
to hope there’s a back-up acquirer which isn’t going to trigger another
referral, but I don’t think anyone will be prepared to pay what GBT offered,”
says Warner. “Do they try and negotiate a lower price? Does GBT walk away
altogether? If there is someone in the background, can they move fast enough?”
Or will the CMA and DOJ simply clear the way for the deal
to proceed, with or without remedies? All those questions and more might finally be answered in the
months to come.
• See also: A timeline of the proposed acquisition, as reported by BTN Europe.