Mark Pestronk
Q: I am intrigued by the proposed sale of Global Business Travel Group, which does business American Express Global Business Travel or Amex GBT, to Long Lake Capital Management. What does it mean for other U.S. TMCs? Does the sale price set a new standard in valuation of TMCs? If so, how does that standard affect the value of my TMC? Since Long Lake Capital is known for applying AI to service businesses that it buys, does the sale mean that we'll have to adopt more AI processes to remain competitive?
A: First, the sale price is very good news for TMCs: $6.3 billion is about 10 times the company's projected 2026 Ebitda of $615 million to $645 million. I know of no TMC that has ever sold for that big a multiple of profits.
The average TMC probably sells for four to eight times profits, depending upon the seller's size and market position. The AmexGBT price does not mean that your TMC will probably sell for a multiple of 10 times profits, but it probably does mean that TMC prices will now trend somewhat higher.
Second, Amex GBT has struggled on the stock market, as its share price has never taken off during the four years it has been a public company. One reason why it has never attracted much interest is that it has been placed in industry groupings that it doesn't belong in, so investors may have had a hard time understanding what the company does and how its value relates to the value other companies.
For example, Investor's Business Daily lists the stock as part of the Leisure/Travel Booking industry group; The Wall Street Journal classifies it as in the Leisure/Arts/Hospitality business; and Yahoo Finance classifies it as a "consumer cyclical" and lists "comparable" companies that include Lindblad Expeditions.
It probably does not pay for a TMC to go public. The most recent one to do so was Navan, whose stock has gone down since it went public. The lesson here is that you probably are better off staying private and selling at a high multiple of profits.
Third, history shows that, as long as a TMC has a top-notch corporate online booking system and integrated middle- and back-office systems, it is well positioned to compete with Amex GBT for large and midsize corporate clients. To the extent that management becomes more focused on bringing AI to streamline and achieve efficiencies, that company may lose some of the personal touch that at least some corporate travelers still want. That loss may spell new opportunities for TMCs to compete for clients that still want a high-touch option.
Finally, no AI-driven travel or other service technologies stay truly proprietary for long, so you and other Amex GBT's competitors will undoubtedly be adopting similar processes to achieve greater profits, which will in turn lead to higher acquisition prices in the years ahead. Good news for TMCs all around.