The UK Competition and Markets Authority has raised serious concerns about Amex GBT’s takeover of CWT. Ian Taylor reports
American Express Global Business Travel (Amex GBT) chief executive Paul Abbott appeared relaxed about the UK Competition and Markets Authority (CMA) investigation of the company’s planned takeover of CWT when he reported second quarter financial results on August 6.
Abbott went so far as to say: “The CWT acquisition is now expected to close in the first quarter of 2025.”
That seems somewhat optimistic given it was on August 6 that Amex GBT parent group Global Business Travel Holdings rejected the chance to provide ‘remedies’ to address the CMA’s competition concerns.
The CMA noted tersely when it confirmed the launch of an ‘in-depth’ phase 2 investigation into the $570-million takeover of CWT on August 12 that Global Business Travel had “informed the CMA that it would not offer such undertakings”
The competition regulator has since laid out a schedule for the investigation which should see it produce an interim report on the market implications and potential remedies in November and a final decision by late January next year.
The US Department of Justice is also examining the takeover, announced in March.
Abbott told analysts: “We continue to work collaboratively with the CMA, as well as with the Department of Justice in the US.
“We believe a comprehensive analysis will clearly show the transaction will create more choice for customers [and] more efficient distribution for suppliers while maintaining a highly competitive environment for business travel services.
“We continue to expect to receive full approval of the transaction.”
I would not be so sure. Amex GBT and CWT, formerly Carlson Wagonlit Travel, are arguably the two biggest travel management companies (TMCs) in the US. Amex GBT is certainly the biggest. It is also the biggest in the UK, in Europe and globally, with CWT the number three in the UK and Europe.
So, the competition issues are real.
Amex owner Global Business Travel Group was set up in 2021 and listed on the New York stock exchange in 2022 with precisely this kind of consolidation in mind.
The group was formed from a merger of Amex GBT with Apollo Strategic Growth Capital – a ‘special purpose acquisition company’ or SPAC – which was in turn set up by US venture capital giant Apollo Global Management, private equity firm Ares, virtual meetings group Zoom, leading US travel technology firm Sabre and investment advisor HG Vora.
They joined existing investors in Amex GBT – former owner American Express, private equity firm Certares and Expedia Group.
Abbott made clear the pressures for consolidation in the corporate travel sector when he spoke at the UK’s Institute of Travel Management (ITM) conference in May 2022, arguing: “There will be pressure for consolidation because of the requirement for significant investment in product and technology.”
The Amex GBT chief was confident enough when announcing the takeover in March to say he expected it to be finalised in the second half of this year.
‘Substantial lessening of competition’
The CMA’s summary of its initial investigation findings makes interesting reading, and not just the top-level conclusion that “the acquisition gives rise to a realistic prospect of a substantial lessening of competition . . . in the market for the supply of business travel agency services to global multinational customers globally”.
The authority noted: “The parties [GBT Group and CWT] overlap in the supply of business travel agency services in the UK and globally and submitted that they had a combined UK share of supply of 30%-40% in 2023, with an increment of 5%-10%.”
This market share easily surpasses the 25% threshold at which the CMA is empowered to investigate a merger.
Tellingly, the summary makes clear there is substantial concern about, and opposition to, the merger not only from rival TMCs but among the global companies which are clients of Amex GBT and CWT.
The CMA reported receiving “evidence from the parties’ TMC competitors, customers and suppliers – major airlines and hotel chains”.
It noted: “Global multinational customers generally have distinct travel requirements and in choosing their TMC they look for the ability to cater for global geographic coverage, complex needs and high levels of in-person support. Only a handful of TMCs are . . . capable of meeting their needs.
“The merged entity would be the clear market leader, and the CMA found that the loss of competition between the parties would not be offset by the constraint posed by other suppliers in the market including other traditional TMCs and more recent technology driven entrants.”
Crucially, the CMA found: “There is only one other TMC for which the evidence consistently demonstrates that it is a good alternative to the parties. . . the evidence on the strength of the few other remaining competitors is mixed.
“On this basis the CMA found the merger gives rise to a realistic prospect of a substantial lessening of competition . . . arising from the loss of competition in the supply of business travel agency services to global multinational customers globally.”
This suggests quite an obstacle for Amex GBT and its parent to overcome to complete the deal.
The CMA noted it also considered “whether entry or expansion by rival firms would be timely, likely and sufficient to prevent a substantial lessening of competition happening”.
It concluded: “The barriers to entry or expansion are high. TMCs need significant scale, including a network covering many countries.
“Competitors stated that this is extremely costly and time consuming to achieve. Competitors also identified regulatory requirements as barriers to entry and expansion.”
Tech entrants’ ‘relatively low market shares’
No doubt Global Business Travel Group will argue newer, technology-focused entrants to the market can provide competition to the enlarged business.
But in a conclusion which pours cold water on some of the wilder claims of new tech entrants to corporate travel, the CMA said this: “Customers responding to the CMA identified experience and track-record as an important factor in their choice of TMC, which recent entrants lack.
“While some tech entrants have succeeded in winning some large customers, their relatively low market shares for supply of business travel agency services to global multinational customers, as well as third-party evidence not identifying them as credible global multinational suppliers, demonstrates the difficulty in entering this space.”
So, achieving sign-off for the deal does not appear plain sailing.
Presumably, Abbott and Amex GBT have a fall-back position involving certain proposed remedies. But if so, why not initiate an early discussion of these when offered the opportunity last month?
The company was bullish when reporting its results for the second quarter to June, with 6% growth in revenue to $625 million in the quarter and a 5% increase in total transaction value to $7.7 billion.
Abbott stressed “strong growth, significant margin expansions, increasingly strong customer retention and we continue to gain share while controlling costs”.
But a quarterly net profit of $27 million – albeit compared with a $55-million loss in the same quarter the previous year – was hardly spectacular ahead of the summer leisure travel season of July to September when corporate travel inevitably dips, especially when $26 million of the £27 million profit was due to a tax repayment.
Abbott noted the company divides its customer base “into two general categories, global multinational (GMN) and small and medium enterprises (SME)” and hailed a “stronger relative performance with our global multinational customers”. By contrast, “SME growth was relatively muted in the quarter”.
It is precisely these global multinational corporations that are alarmed by the merger with CWT.
Amex GBT chief financial officer Karen Williams nonetheless assured analysts: “M&A presents an opportunity to accelerate the strong performance in our business, including significant value creation from the pending CWT acquisition.”
We shall see.