TMC Consolidation Trend Intensifies With Tzell-Protravel Acquisition

Consolidation is upon us.

That’s the blunt message from a pair of highly publicized recent TMC acquisitions and other purchases by smaller business travel agencies that never made the headlines.

Earlier this week, New York-based Tzell Travel Group bought cross-town rival Protravel International. In October, Nebraska-based Travel & Transport acquired 100% of smaller New York-based competitor Ultramar. Purchase prices for the privately held companies were not announced. (See story, Travel & Transport Acquires Ultramar, Creating TMC Giant, Oct. 11, 2012)

Cheaper to buy growth
“We will be seeing more of these purchases,” said Don Kennedy, senior vice president for business development at Forte Business Solutions (a sister company to Travel Market Report). “When you do the numbers, it is cheaper to buy growth today than it is to produce it yourself.”

The Ultramar purchase pushed Travel & Transport from $2 billion in sales to $2.5 billion. Tzell expects to grow from its current $1.5 billion to around $2.35 billion. Statements issued for both acquisitions waxed eloquent about mutual admiration for competitors, complementary corporate cultures, and similar zeal for customer service.

Tzell chief executive officer Barry Liben went farther in describing what he called a basic reason for the acquisition. He told reporters that in a highly consolidated industry, a combined Tzell-Protravel would be a far more profitable and formidable company than either could be on their own.

Smaller agencies might argue that bigger is not necessarily better when it comes to customer service, but bigger is definitely better when it comes to attracting RFPs. Most large companies put out RFPs to the ten largest TMCs, Kennedy said. The most direct way to be sure your company is on that select list is to bulk up.

Directravel’s acquisition strategy
Directravel brought attention to the current wave of consolidation in 2011 when Silver Oak Services Partners, a venture capital firm, hired Ed Adams to consolidate smaller business travel agencies into a new mega TMC. Adams had already been down the roll up road before.

He started with $10,000 borrowed from his parents and ending up in control of Navigant International, the second largest TMC in the country. Adams sold Navigant to Carlson Wagonlit in 2006 for $510 million, one of the richest buyouts in the business travel world of the era.

Lisa Buckner, president and chief executive officer of CTS, Directravel’s most recent acquisition, told Travel Market Report that “we have lots of (acquisition) irons in the fire right now.”

Virtuoso: consolidation will continue
Directravel isn’t alone in betting on consolidation.

“There is no question consolidation will play a major role in our industry as it has in many others around the globe, said Matthew Upchurch, president and CEO of Virtuoso, the industry consortium Protravel will continue to use after the acquisition.

“We have seen three-way competition for share of travelers among supplier-direct, OTAs and ‘traditional retail,’” Upchurch said.  “We are now seeing a new wave of consolidation of retail travel distribution led by the corporate or TMC sector.  This consolidation supports the strategy of scale and purchasing power, but also shows the value of our sector which many underestimated…We expect consolidation to continue.”

Biggest players exempt
But don’t expect all TMCs to join the game. The biggest players, American Express, Carlson Wagonlit, BCD Travel and Hogg Robinson, don’t need to worry about increasing size and bargaining clout with suppliers.

It’s the next tier, the largest of the smaller TMCs, that are fighting for market share. Tzell is part of Travel Leaders, which share the top of the second tier with FC USA (formerly Flight Centre USA), Travel & Transport, Altour International, STA, Omega World Travel, Frosch, Ovation and other familiar names.

Kennedy said smaller business travel agencies are busy consolidating as well. These smaller acquisitions don’t make national headlines, but the reasons are the same: It’s cheaper and faster to buy competitors and acquire their clients than it is to build market share one new client contract at a time.