Mark Williams is partner at Inflexion, the private equity company that sold Reed & Mackay to TripActions
Following a quickfire series of TMC acquisitions, BTN Europe's Andy Hoskins spoke to Mark Williams, partner and head of business services at Inflexion, the private equity company that recently sold Reed & Mackay to TripActions. Terms of the deal were not disclosed. Reed & Mackay was founded in 1960 and bought by Inflexion in 2016 in a deal rumoured to have been worth £170 million.
BTN Europe: How did your involvement with Reed & Mackay begin?
Mark Williams: We acquired Reed & Mackay five years ago from another private equity firm and that came from our focus on the b2b service market, and in this case top end service. We always like something involving technology evolution and we invested heavily in developing their tech – end to end bookings services, high-end connectivity with airlines and content providers. We also acquired businesses in France, Germany… opened in India, Australia, New Zealand. We really built out the geographical footprint in which to deploy the technology combined with this top-end service. They were in a strong position and despite the daily news flow we were feeling pretty good about life. Four to five years' ownership is pretty typical for a PE investor. It gives you enough time to invest in the team and the people and, in this case, to grow from three or four countries to over 20.
BTNE: What set them apart for you?
MW: Their singular focus is on the customer experience at the high-touch travel end. They only do complex travel that requires planning and they built a model that delivers that efficiently. You can offer a very high-end service but if it costs a fortune to deliver it you can’t build a business on that. What was even more appealing was the confluence of service and technology. And they have a really good management team – a sight to behold: Fred [Stratford, CEO], Tracy [Baumfield, head of sales], Joe [Hanly, group chief financial officer], Matthew [Everson, chief technology officer]. I think now, with Covid, Reed & Mackay are the only, scale high-touch travel company left other than Amex GBT.
BTNE: When did the Reed & Mackay sale commence?
MW: We launched the process around February time. We approached a number of likely bidders, many of whom had regularly approached us. Bizarrely for the weird world we’re in at the moment, it was amazingly straightforward. There weren’t any random bidders – nothing odd popped up. We had our chosen bidder, TripActions, in a matter of weeks and then it took another four or five weeks to complete the deal. That is incredibly rapid, but with a focused trade buyer they know what they’re doing. TripActions really wanted us and they were the clear choice. It’s a great home – a really interesting company – and it’s intriguing to see what they’ll do. What I would stress is that we [Inflexion] have great teams building businesses up but we also find them really good homes. The management team at Reed & Mackay are genuinely excited to be a part of it. What we’re proud of is investing in a really good business, scaling it up and finding it a great new home. The pandemic didn’t stop us doing that. We were able to get value for it even in the worst of times.
BTNE: How did the sale come about at this point in time?
MW: I’ve been in private equity 20 years and it’s probably the most interesting case study I’ve ever worked on. Much more interesting than an easy one. Why now? The pandemic created the ‘why now?’ but not for the usual reasons. It has really accelerated technology investment to a level that’s been unheard of, particularly with NDC and changes at the GDSs and distribution networks. There is greater need for high-end integration with suppliers – it has to be slicker now. We’ve probably done five years of tech development in the last year and all the best players have done that. It turns out people can work quite well at home developing code. This acceleration has meant the TMC market has needed to consolidate quicker. TMCs missing this element have had to invest.
BTNE: How many serious bidders were there?
MW: It’s not a vast market – you know the names. There were four or five interested but the reality in any deal is that you typically get one really serious bidder that delivers all the way through.
BTNE: How did the pandemic affect the valuation of a TMC?
MW: TripActions valued it [Reed & Mackay] broadly in line with what you’d have seen pre-pandemic. You can’t value businesses on current EBITDA but we do know things will get back to normal. People said ‘oh you’ll just give it away during the pandemic and the management and the employees will be upset’ – well we haven’t done that. We’ve found a really good home for the business.
BTNE: As the seller, what’s the priority – the price, the right buyer, or the speed of the deal?
MW: That’s a tough one. The easy answer is that it’s a combination. The perfect buyer is a pretty rare thing. You don’t know who’s going to be interested when you start [the sale process] and where they’ll all be. It’s about preparing the information on the business and then working with the cards you’re dealt. We turned a number of bidders away. We’re not sellers at any price. We pushed the right party to the right price. We always could have kept Reed & Mackay. It’s a perfectly liquid business, it had lots of cash, was well managed, good management, good customers. We always had the option not to sell and that allowed us to choose the right partner. The main thing when selling a business is to have a really strong position and to be relatively bold with the bidders.
BTNE: Do you think Reed & Mackay envisaged TripActions as their destination 12 months ago?
MW: They’ve [TripActions] always been there on the buyer list. We’ve always seen them as the best home because the two businesses are complementary and that’s really appealing as an investor. This deal isn’t just about growth – it’s really about expanding their potential. We were surprised they delivered at the speed they did, and that they outcompeted some other very seasoned competitors, because they’ve never done a deal before. This is was also a UK deal so there were lots of legal complexities they’re not used to as a West Coast buyer. They were very impressive.
BTNE: Has the pandemic sped up consolidation?
MW: There is a slight pandemic effect in that some of the weaker players have been gobbled up. We saw Travel & Transport bought by CTM, for example. And there are a lot of smaller, general business travel agencies – nothing special but good businesses with good customers. They’re the ones being eaten up in the pandemic. Amex [American Express Global Business Travel], TripActions, FCM… I expect these big players are all looking at the market right now because they see it consolidating but everyone needs good technology to move up a level. The Amex GBT-Egencia deal tells you everything you need to know. Amex is a great business but relatively old school. Very different to TripActions. And they’ve seen the need to acquire Egencia at the other end of the travel tech spectrum. I think both deals signal where the market is going, at least at the top end – you need quality service and the best technology.
BTNE: The two deals have brought them closer together as competitors…
MW: Definitely. I expect Amex would have liked Reed & Mackay but Egencia was bigger and more appealing for their need at this point in time. That tech solution appeals to them globally. Who will win in that debate – service plus tech or tech plus service – I don’t know, but the market’s moving fast. I think we’ll see those two groups really push ahead. These bigger players are going to be pretty dominant and the choice is narrowing.
BTNE: And what of further consolidation in the market?
MW: Volume of deals… there’s going to be lots. There are unfortunately lots of smaller TMCs struggling, but I don’t think there’s much left that could be game-changing. BCD and CWT have been quiet. Booking.com might look at the market having seen what Expedia have done [taken a stake in Amex GBT as part of the Egencia sale]. If you’re a single country solution without great tech you’ve not got many options. They’re going to have to wait out the pandemic, maybe merge to try and get some scale and then better value when you eventually sell. For me, the next 12-18 months is where we might see IPOs – I can see TripActions looking at that, Amex GBT looking at that. And if you want to invest in stock that can only go one way it’s business travel over the next five years.
BTNE: But the message is ‘don’t expect a bargain’?
MW: I think there are two types of opportunity now. Those that need to consolidate because they’re not really viable post Covid – they’ve lost too much capital and they need to be bigger. They will be cheaper at the moment but they need to be put together quickly and sold into one of the bigger groups based on volume, and that just means that you’ll pay less for them but they’ll be worth less. That’s a strategy that will roll up some of the smaller players. And then I think there’s the kind of deals we’ve seen this week where TMCs are adding or strengthening a missing component. These deals aren’t going to be cheap but they will be more profitable in the long run.
BTNE: The recent deals definitely suggest there’s no loss of confidence in the market…
MW: Absolutely. I’m pretty optimistic about business travel and I think it’s going to bounce back quickly. China’s already at 90-100 per cent domestically. Things will start to move, slowly, in September and we can probably write off 2021, but 2022 is looking promising.
BTNE: Are you considering investing in TMCs again in the future?
MW: We’re looking for more travel investments particularly in travel technology. We’ve been invested in Atcore which specialises in software solutions for tour operators since 2017. Under our ownership it has transitioned to a SaaS based revenue model and has proven its resilience during the pandemic. So the pandemic hasn’t put us off. Would we look at TMCs again? It would have to be very compelling, as Reed & Mackay was last time. We’re very particular. Ultimately travel – leisure and business – has been growing for 100 years. It’s incredibly volatile now – more than it has been in those 100 years – but it’s going up on average and it has a steady tailwind. The next few years are going to be fascinating.