It is nearly a year since American Express Global Business Travel announced its $570 million acquisition of CWT ¨C a deal it hoped to conclude in the second half of 2024 ¨C and the two TMCs are still in limbo.

A major hurdle could be removed later this week when the UK¡¯s Competition and Markets Authority decides whether to let the acquisition proceed. One thing that has become clear during the CMA's investigation is CWT¡¯s declining position which has been exacerbated by the CMA and US Department of Justice¡¯s respective decisions to assess the deal, thus delaying the TMCs¡¯ consummation. What began as a strategic acquisition has turned into a rescue mission.

The deal looked to be in danger until an unexpected U-turn from the CMA a fortnight ago signaled a shift in its trajectory. Initially opposing the merger over competition concerns, the regulator is now expected to grant final approval, in no small part due to CWT¡¯s deepening financial fragility.

While CWT was not officially on the market, its precarious financial situation has long pointed to it being acquired. In 2021, the TMC filed for Chapter 11 bankruptcy in the US, and by late 2023, a recapitalisation plan reduced its debt by more than $450 million.

At the same time, the TMC implemented a raft of measures to stabilise the business, which one commentator said created the perfect storm. ¡°There were big capex cuts, our technology stagnated and there was little strategy. We had an agent-led business so when customers started leaving the headcount cuts accelerated. When you do all that, the customer experience declines and retention slips,¡± a recently former senior employee of the company told BTN Europe.

The loss of its largest customer, Amazon, to BCD Travel in 2023 was a severe blow for CWT, said the source, while other large businesses have followed its departure. ¡°Any goodwill [among clients] was running out ¨C big corporates want stability. Winning business [at the moment] is out of the question and more and more RFP cycles are coming up too.¡±

Since 2019, CWT¡¯s headcount has been slashed from 19,000 employees worldwide to around 9,000 today, they added. ¡°The acquisition would be the saviour of the skeleton crew that¡¯s left. It has become a rescue mission.¡±

Meanwhile, Martin Warner, principal at MW Travel Consultancy ¨C and a former CWT EVP some ten years ago ¨C says: ¡°The pandemic triggered something that was inevitable for CWT given the structure of the company and the debt it had carried. The business has been damaged over time and Covid was the tipping point.¡±

Warner adds: ¡°Since then it¡¯s been an almost impossible task to restructure, to get the cash flow, and get customer confidence. Does CWT have much of a financial runway? Have the existing investors reached an agreement to provide additional working capital funding until the DOJ case is resolved? The longer this goes on, the surer the case that this is a rescue mission.¡±

AN UNEXPECTED U-TURN

CWT¡¯s financial uncertainty was a key focus of the CMA¡¯s ¡®supplementary interim report¡¯ published on 18 February in which it declared the deal should provisionally be allowed to proceed. It had previously opposed the acquisition primarily on the grounds of a ¡°substantial lessening of competition¡± for large corporates.

Its U-turn was based on new client bidding data which revealed CWT¡¯s struggles to win and retain business, a reassessment of its competitor set, and additional financial information.

The CMA¡¯s chair of the investigating board, Martin Coleman, said in the report that it had ¡°provisionally concluded that CWT is a significantly weaker competitor than in the past and is likely to continue to weaken in the future.¡±

As reported by BTN Europe stablemate The Beat, Amex GBT has argued that CWT qualifies for a ¡®failing firm¡¯ defense (link requires subscription), reinforcing the case for the merger. The parties have also urged the US regulator to fast-track its case to May, but it remains scheduled for September.

Martijn van der Voort, owner at AstraNomad and former director of online product delivery at CWT, says the CMA¡¯s conclusion ¡°now acknowledges something of magnitude: CWT cannot sustain itself much longer.¡±

¡°This merger must happen, not for shareholders or its leadership team, not for corporate strategy, but for the long-suffering employees who have given everything and much more to keep CWT afloat,¡± adds van der Voort, who left the TMC last year.

Prior to the CMA¡¯s U-turn, business travel industry consultant and advisor Patrick Diemer had written in a Company Dime Op Ed that the deal was ¡°falling apart¡± under the scrutiny of the CMA and DOJ.

In correspondence with BTN Europe, he noted the CMA¡¯s new findings were almost exclusively based on the weakness of CWT as a competitor, downplaying the market impact of the acquisition.

¡°The CMA seems to ignore the resulting structure of the market after the merger ¨C it is still the number one [TMC in the market] taking over number three, and number one will be much stronger by doing so,¡± he said.

Although exact details of the TMCs¡¯ bidding data were redacted in documents published online, Diemer estimates that around 80 per cent of all new business deals, including renewals, were landed by the top four TMCs: Amex GBT, BCD Travel, CWT and FCM.

On the flip side, less than 20 per cent of new contracts are awarded to CTM, Navan, Spotnana and the many other alternatives combined. ¡°It seems bold for the CMA to conclude that these smaller competitors are expected to exert increased competitive constraints in the future,¡± said Diemer.

He also highlighted the somewhat arbitrary nature of the CMA¡¯s verdict where a majority conclusion is required by the investigation¡¯s four-person panel, meaning just one person could have changed their view and altered the course of the deal. ¡°It¡¯s probably less of a drastic U-turn than one might think,¡± says Diemer.

A PROTRACTED PROCESS

Some industry insiders argue that the regulatory scrutiny may have been unnecessary from the outset. ¡°The CMA¡¯s change of heart surprised me, but it surprised me there was a referral in the first place,¡± says Martin Warner.

He is not alone in pointing out that investigating authorities are typically starting from a position of having zero or little knowledge of the companies and verticals they¡¯re assessing.

John Harvey, managing partner at Globalyse, says: ¡°The CMA spent two months educating itself about a business travel sector it did not understand sufficiently and was no doubt blinded by the names of customers and the scale of travel expenditures involved.¡±?

Harvey continues: ¡°It should have focused on the actual role and much smaller revenue flows of the intermediary travel agencies themselves but it remained focused on the bright lights of travel volume and built an initial case around that.¡±

For Amex GBT, a principal objection to the CMA's investigation was its focus on ¨C and definition of ¨C global multinational customers (GMNs), which the CMA describes as companies with more than $25 million in annual total transaction value. The TMC argued that such companies do not constitute a distinct market with unique requirements and that their needs are substantially similar to those of SMEs.

Warner is in agreement, saying the scope of the CMA¡¯s investigation was too narrow. ¡°Looking at the history of mergers and acquisitions, the last thing you want is a narrow scope. If there¡¯s going to be one [an investigation], it needs to be as broad as possible.¡±

John Harvey, who was CMO at HRG when it was acquired by Amex GBT in 2018, also questions the CMA¡¯s decision to put its new, in-depth Phase 2 investigation process to the test.

The CMA celebrated its revised merger inquiry process in its first interim report published in November, claiming greater efficiency and deeper engagement, and enabling it to make its provisional decision ¡°earlier than under the old process¡±. But in January the CMA pushed its decision deadline back by six weeks and by February had changed its position on the deal altogether.

Harvey says: ¡°Fortunately, although adding another six months to the process, this independent study found what the CMA themselves couldn¡¯t see ¨C that there is no case to answer. It is just a crying shame that it has taken nearly a year and caused so much stress and uncertainty for the CMA to arrive at this conclusion.¡±

WHAT HAPPENS NEXT?

While the CMA is due to deliver its final decision by March 9, the DOJ¡¯s involvement remains a wild card. Some speculate that a change in US administration could shift the DOJ¡¯s stance.

The timing of the DOJ¡¯s original concerns, filed under the Biden administration ¨C which Amex GBT argued was ¡°politically motivated¡± ¨C has led to speculation about whether a Trump administration could take a different view. A prolonged DOJ review could test Amex GBT¡¯s patience and willingness to proceed, especially as the value of CWT continues to deteriorate, other commentators suggest.

¡°The DOJ will likely observe the CMA¡¯s considerations in detail,¡± says Patrick Diemer. ¡°But it remains completely speculative as to whether DOJ will change course. The DOJ¡¯s case was launched under the Biden administration ¨C will the Trump administration care enough to change DOJ¡¯s course in this case?¡±

Martin Warner ponders whether Amex GBT is even prepared to wait for the DOJ. ¡°It was an attractive price at which they agreed to buy CWT, and they may think the prize is still valuable and worth waiting for at that price. But if the deal is blocked, or they walk away and pay a break fee, what happens to CWT at that point?¡±

ALTERNATIVE AVENUES

In the eventuality that the deal falls through, commentators have been lining up to pair CWT off with another suitor.

Norwegian TMC Berg-Hansen contended in its response to the CMA¡¯s investigation that CWT will have developed a ¡®Plan B¡¯, as should be expected of prudent shareholders. ¡°To use CMA¡¯s own words: 'It is likely' that the owners possess the capacity and the will to strengthen CWT¡¯s competitive position in that scenario,¡± it wrote in its objection to the CMA's change of direction.

Navan, TravelPerk and Emburse have all been floated as potential buyers, with BCD Travel ruled out on the likelihood it would face the same regulatory processes encountered by Amex GBT.

Both Patrick Diemer and Martin Warner see a Steve Singh-led vehicle as a good fit, although a source close to the matter insists the Madrona investments managing director and Spotnana CEO was behind an offer to buy the TMC in the autumn of 2023.

¡°I¡¯d like to think that Steve Singh could still be an alternative buyer and really take CWT¡¯s global capability and build an international network for Direct Travel,¡± says Warner. ¡°That would make a lot of sense. It would bring an inhouse global distribution capability for Spotnana and for Troop. That for me would be the logical alternative.¡±

Some industry observers believe a breakup of CWT¡¯s business segments ¨C such as its military and government division (CWT Sato) or its meetings and events unit ¨C could yield greater returns than a full-company sale, but do its investors have the patience for that?

¡°You¡¯ve got to hope there¡¯s a back-up acquirer which isn¡¯t going to trigger another referral, but I don¡¯t think anyone will be prepared to pay what GBT offered,¡± says Warner. ¡°Do they try and negotiate a lower price? Does GBT walk away altogether? If there is someone in the background, can they move fast enough?¡±

Or will the CMA and DOJ simply clear the way for the deal to proceed, with or without remedies? All those questions and more might finally be answered in the months to come.

? See also: A timeline of the proposed acquisition, as reported by BTN Europe.