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Corporate Travel Management, strengthening its position in the mid-market segment

Team Veye | 01 Oct 2020 ASX - CTD
Corporate Travel Management, strengthening its position in the mid-market segment

Corporate Travel Management (ASX: CTD)

Corporate Travel Management announces the acquisition of Travel & Transport and fully underwritten entitlement offer

Corporate Travel Management Limited (CTM, ASX: CTD) on 29 September 2020 announced that it had entered into a binding agreement to acquire 100% of Travel & Transport, Inc. (Travel & Transport) for a cash and debt free enterprise value of US$200.4m (A$274.5m)

(Chart source: TradingView)

Highlights:

  • Acquisition of Travel & Transport, a leading North American corporate travel business with CY19 TTV of US$2.8bn (A$4.0bn)
  • Enterprise value of US$200.4m (A$274.5m) on a cash-free, debt-free basis
  • Compelling strategic rationale for the acquisition, with scope for material combination benefits
  • Implied acquisition multiple of 7.0x Enterprise Value / CY19 pro-forma EBITDA based on Travel & Transport’s most recent audited financials for CY19 which was prior to the impact of COVID-19. Implied acquisition multiple reduces to 4.3x including estimated full run-rate synergies of US$18m4 (A$25m)
  • Expected to be approximately 10% EPS accretive on a pro-forma CY19 basis excluding synergies (and approximately 30% EPS accretive including synergies)
  • Funded via a fully underwritten entitlement offer to raise $375m. Additional capital being raised to fund acquisition costs, integration costs, provide additional liquidity to fund potential Travel & Transport losses for a prolonged period, balance sheet flexibility and capacity for other acquisitions
  • Net cash position post equity raising of $126.8m, with £100m (A$181.8m) additional liquidity via committed undrawn finance facility

 

(Graphic Source – Company Reports)

  • Key Travel & Transport executives, including the CEO, to invest in CTM stock
  • Completion is expected to occur in late October 2020
  • While the acquisition of Travel & Transport is likely to represent a significant change to the scale of CTM's activities in the context of ASX Listing Rule 11.1, ASX has confirmed that CTM is not required to obtain shareholder approval for the transaction (Data Source – Company Reports)

 

Veye’s Take

Corporate Travel Management’s acquisition is expected to be approximately 10% EPS10 accretive on a pro-forma CY19 basis. When including estimated full run-rate synergies of US$18m (A$25m), the transaction is expected to be approximately 30% EPS accretive. It Positions CTM as a global leader in the mid-market segment. Combined business would have TTV of approximately $10.8b, an increase of ~60% (based on pro-forma CY19). The stock is trading above 50 and 200 MAs on daily t/f. It is also trading above its strong support area on short term charts. It can have the potential of moving very significantly in medium to long term. Latest "Buy" on “Corporate Travel Management” at the price of $13.78 was given on 24 August 2020. It has already grown by more than 25% in less than one and a half months only. Veye maintains a "Hold" on “Corporate Travel Management” at the current price of $17.23

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