THE rumours have been swirling for months, and yet still many in the industry appear to have been completely blindsided by last week’s announcement that Express Travel Group will be acquired by its arch-rival Helloworld Travel Limited in a huge $70 million cash and share deal. In fact as speculation firmed in recent weeks, there was still plenty of incredulity that these long-time fierce competitors could end up under the same roof – but indeed, it is definitely happening.
I don’t want to overblow my powers of prophecy, but I have actually for some time been thinking that a tie-up between Helloworld and Express Travel Group was inevitable. This is the last major deal to be done in the Australian and New Zealand travel sector’s long history of consolidation. Two decades ago, alongside the behemoth that is Flight Centre’s red-and-white retail brand, there were many individual travel agency groups – all fiercely independent, with their own culture and loyal following. Little by little, as margins squeeze and the distribution landscape evolves, they have gradually come together, as TTV in the end became the driving force in negotiations with suppliers to extract overrides, bonuses and marketing funds.
Helloworld, which started life as Jetset Travelworld Limited when those two brands amalgamated and became publicly listed, now incorporates many agencies who formerly operated under banners like Harvey World Travel, Travelscene and of course Magellan, Phil Hoffmann Travel and MTA Mobile Travel Agents – and now this retail travel giant will also add ETG’s brands including italktravel, Independent Travel Group, Select Travel Group and NZ’s First Travel Group and YOU Travel to its portfolio.
While Helloworld CEO Andrew Burnes and Express Travel Group’s Tom Manwaring have long been seen as adversaries, nobody can deny the logic of this deal. Manwaring, who has endured the pandemic at what must be close to the end of his stellar industry career (not to mention stepping into the breach to lead AFTA through the ructions of the last few years) well deserves to exit on a high, and the $70 million total price tag will certainly help to do that – although half of that sum goes to his business partner, Spiros Alysandratos, and there is no doubt Manwaring will also be able to clear any debts incurred with the acquisition of his NZ businesses. However he also insists he’s not going anywhere in a hurry, assuring members and staff that it will be business as usual for Express Travel Group once the acquisition settles.
Cash and shares in the mix
The due diligence process in deals like this can be exhausting – and expensive – with the Explanatory Memorandum released by Helloworld in the lead-up to the required Extraordinary General Meeting to discuss the deal confirming HLO alone has spent about $500,000 on advisers and other transaction-related costs. The proposed deal was negotiated on an arm’s length basis, with third-party advice and a robust due diligence process, which has seen a two-stage payment process implemented to help reduce the risk to Helloworld in the unlikely event that ETG’s figures are not what they seem. Tranche 1 will be paid when the deal is completed, estimated at this stage to be on 31 July 2023, and will consist of a $40 million cash payment and the issue of new Helloworld shares worth $10 million.
The second tranche, comprising $15 million in cash and a further $5 million in shares, will be made about two months later, after ETG’s 2022/23 financial year figures are audited and finalised. This is seen as a “de-risking of the transaction” by the Helloworld Board of Directors, all of whom intend to vote all HLO shares held or controlled by them in favour of the acquisition. The Directors, including CEO Andrew Burnes and Executive Director Cinzia Burnes, collectively hold or control about 26.77% of Helloworld shares on issue.
The acquisition is complicated by the fact that Sintack Pty Ltd, the family company of ETG’s 50% owner Spiros Alysandratos, is also a significant shareholder in Helloworld, with a stake amounting to 13.31%. Because the ETG shares being acquired from Alysandratos via his CTG Investments Pty Ltd ownership vehicle amount to more than 5% of Helloworld’s total market capitalisation, a special resolution is required to pass the deal, and Alysandratos and his associates are not allowed to participate in the vote. The meeting which will discuss and presumably pass the ETG Resolution will take place in a virtual format at 10am AEST on Wednesday 26 July 2023.
Expert concludes deal is fair and reasonable
The notice of the special meeting includes a report commissioned as part of the formal process, compiled by consulting firm Grant Thornton as an “independent expert” to look at whether the deal is fair and reasonable to shareholders other than Alysandratos. The report provides intriguing details about Express Travel Group’s previously closely held financials, including confirmation that over the last 12 months its TTV (to the end of March) was $660 million, with sales accelerating in recent months to about $70 million per month. The $70 million purchase price has been calculated at seven times earnings, meaning the target company is expected to make about $10 million in profit this year, a figure which is confirmed in the Grant Thornton report.
Based on a premium for control, and comparing Express Travel Group and Helloworld Travel with global listed peers such as Flight Centre, Webjet, Corporate Travel Management, Expedia, Amex GBT and Booking.com, the consulting company believes ETG is worth between $63 million and $80 million, meaning the $70 million price is fair, Grant Thornton concluded, while the synergies to be achieved by combining the operations are likely to boost the fortunes of all shareholders meaning it’s also a reasonable offer.
ETG network must remain intact
There are just a few conditions to the deal, including the aforementioned shareholder approval of the ETG Resolution at next month’s General Meeting. Express Travel Group must also complete the acquisition of 100% of the issued capital of NZ-based First Travel Group – a condition which is also likely to have been satisfied over the last few months. At least 90% of ETG staff must also agree to transition to being employed by Helloworld Travel Limited – although ETG CEO Tom Manwaring has made pains to note that service levels across the business will be maintained with all staff remaining in their current roles.
The most notable condition is “the retention of no less than 90% of the agent members” within ETG, to ensure the underlying business remains value for money for Helloworld shareholders. The explanatory memorandum notes that ETG comprises 836 agents around Australia and New Zealand, about 400 of whom are classed as “member agents” while the remainder are independents who are not under contractual agreements but use the Express Ticketing services.
Other parts of the document provide a further breakdown, indicating there are more than 360 Select Travel Group agencies nationally, along with over 380 members in the Independent Travel Group. There are also over 30 italktravel stores operating in Australia, along with an unspecified number of home-based Independent Travel Advisors. The document mentions the Express Corporate division which uses the Alatus brand, while in New Zealand there are over 50 independent members of the First Travel Group and about 30 YOU Travel stores.
Not just about agent numbers
As well as expanding Helloworld’s Australasian retail footprint, other key benefits of the deal include a potential $2 million uplift in override commission for Helloworld. “If HLO will earn commission going forward from the acquired ETG TTV in line with the existing HLO contracts, it will result in an annualised override commission uplift of about $2 million,” the memorandum notes. On top of that cost savings are expected to be realised from the elimination of expenses such as fees paid to ticketing services that will be replaced with HLO’s Smart Tickets system, and accounting and other administration costs that will be immediately available. “Further savings relating to the duplicated corporate costs including technology and communications, administration and occupancy expenses are anticipated, the majority of which are expected to be realised over the next two to three years,” the report adds.
There are also likely to be synergies in cruise, with ETG’s Creative Cruising wholesale division pretty much the only competitor to Helloworld’s cruise operations which incorporate Cruiseco and Seven Oceans.
Manwaring supremely optimistic
Helloworld’s directors are also recommending the deal as “strategically compelling” because it recognises that the ticket consolidation business of ETG and Helloworld together will enable a “competitively stronger business”. That’s definitely a sentiment endorsed by Express Travel Group CEO Tom Manwaring, who told members in a video update about the acquisition that “scale matters in this industry now”.
“What will change to the better side is a greater scope of deals for you – land, air, cruise – because we are being acquired by a larger company… change is constant in our industry and we have to move with that change,” Manwaring said.
“We have to look to the next couple of decades and see where will ETG be in its strongest position. Being acquired by a listed company with a lot more scale, a lot more scope for better deals and contracts across everything we do in our travel business, it’s all positive,” the ETG chief said. He promised that service levels would be maintained, by the same staff under the ETG banner, and “we look forward to a very successful future”.
“In terms of challenges ahead, we’ll be equipped to handle just about anything now, we’ve got the firepower to survive further COVIDs or whatever is thrown at us…that’s one of the great benefits now of having a big brother, if you like, which will be Helloworld,” he said.