Ultramar Acquisition: TMCs See More Consolidation Coming

News that Midwest giant Travel and Transport bought 100% of New York-based Ultramar has sparked speculation among corporate travel watchers, some of whom see it as the first shot in a new round of mergers and acquisitions in corporate travel management.
(See story, Travel & Transport Acquires Ultramar, Creating TMC Giant, October 11, 2012)

Among other questions raised: Why did New York-based Ultramar, with a healthy $500 million in annual sales, sell out to $2 billion T&T? Where was Directravel, whose CEO Ed Adams launched its own acquisition drive last year?

Industry paying attention
“The industry is paying attention to this acquisition,” said Lea Cahill, chief operating officer of Atlas Travel. “This isn’t just Travel and Transport’s latest acquisition, it’s the largest move in a consolidation [trend] that includes players like Travel Leaders. There is still plenty of room for acquisitions, and not just the larger end of the midmarket acquiring smaller agencies, but also agencies of like size.”  

Mega agencies, American Express, Carlson Wagonlit, BCD Travel and other TMC giants, are not in play, said Goran Gligorovic, executive vice president of Omega World Travel. These top tier agencies had their aggressive growth phase in the late 1990s and early 2000s.

Globalization and serving global clients meant having an office in every village. Today, those top tier players are big enough they no longer need acquisitions and too big to be acquired by a hostile suitor.

Other merger potential
But there is plenty of potential for mergers and acquisitions among mid-sized and small TMCs. That was the game plan that Directravel launched in 2011 with plans to roll up smaller corporate agencies around the country with Adams at the helm.

“The real question is where was Ed Adams in this picture?” asked consultant Scott Gillespie. “He hasn’t been as active as we all expected. Agency owners I’ve talked to said they haven’t been approached by anyone. Owners just don’t see good valuations out there. Unless you are under economic pressure, there probably is no real reason to sell today.”

Adams himself declined to comment on the T&T-Ultramar deal. But the acquisition looks positive to many observers.

‘A pretty good purchase’
“This was a pretty good purchase for Travel and Transportation,” Gligorovic told Travel Market Report. “This acquisition gives them a strong position on the East Coast. Ultramar is very strong in the financial industries and in fashion. These are segments you can’t break into easily.”

Gillespie sees the Ultramar deal as a one-time transaction that was right for both companies. Richard Eastman, president of travel technology specialists The Eastman Group, sees more mergers on the horizon for the same reason Ultramar decided to sell: increasing pressure on profit margins.

Rising tide of automation
Ultramar president and CEO Peter Klebanow isn’t saying why he sold. But despite what is generally seen as Ultramar’s strong financial position, the company’s New York bastion is awash in even larger competitors and a rising tide of automation, Eastman said.

“Their margins had to be getting squeezed,” he said. “The meld with T&T is probably a great exit strategy for the owners.”

The merger is just as good a deal for T&T, Eastman continued. The actual buying of corporate travel is increasingly automated. And in the world of travel automation and distribution, bigger is better.

But service is important too, especially for the smaller clients that make up the bulk of the business for both T&T and Ultramar. Even though 98% of corporate travel buying will be automated, Eastman predicted that business travel agencies will survive on the basis of their corporate travel expertise, packaging, consulting, management and other services that are separate from the actual travel product.
 
Purchasing relationships
Gligorovic said that continuing need for expertise helped motivate assurances from T&T president and CEO Bill Tech that there would be no layoffs at Ultramar. The no-layoff promise was a good public relations move that also recognizes the realities of business travel.

“In our business, you don’t purchase inventory, you purchase relationships,” Gligorovic said. “Most corporate contracts run for three to four years, so it makes sense to say you will keep everybody for five years even if you have no intention of following through. You can’t fire employees because of those existing relationships. If the Ultramar people leave, the client relationships leave with them.”