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Helloworld Travel (ASX: HLO) has staked its faith in a resurgence of the leisure travel market after offloading its business and entertainment travel arm to Corporate Travel Management (ASX: CTD) for $175 million.
The deal is aimed at liberating capital for Helloworld so that it can tap into what it says is pent-up consumer demand for leisure travel services.
The company says the recovery is already in full swing following a 50.5 per cent increase in non-corporate total transaction value (TTV) to $94.8 million in November compared to a year earlier.
The market has welcomed the transaction, marking Helloworld Travel shares higher in morning trade.
The sale has been pitched at pre-COVID figures, struck on a multiple of eight times the division’s normalised EBITDA of about $22 million in FY19.
“While our corporate and entertainment travel businesses are in the early stages of benefiting from the COVID-19 rebound, we believe this transaction is at a compelling valuation to maximise HLO shareholder value, and that will allow HLO to focus on operations which pre COVID-19 represented 80 per cent of our TTV,” says Helloworld CEO Andrew Burnes.
“This will allow the business to capitalise on what we expect to be very significant opportunities during the recovery period ahead.”
Corporate Travel Management says the acquisition is ‘highly complementary’ to the company’s Australian and New Zealand corporate travel management operations with expectations that it will perform strongly as the travel market continues to recover.
The transaction is expected to earnings-per-share accretive on a pro-forma FY19 basis and Corporate Travel Management is expecting to extract synergies through the integration of the businesses.
Helloworld’s corporate businesses comprises QBT, TravelEdge and Show Group in Australia, and APX and Atlas in New Zealand.
Show Group, a business that specialises in travel management services primarily for the Australian and New Zealand entertainment, film, music and arts industries, has benefitted from the rise in film and television production in Australia over the past 18 months.
“We are privileged to be able to acquire these businesses and are excited to be the custodian of such a high-quality portfolio of clients,” says Corporate Travel Management CEO Jamie Pherous.
“We feel strongly that we will be able to continue to deliver strong product and service outcomes to their customers with our dedicated focus.”
Corporate Travel Management will pay $100 million in cash and issue $75 million in shares to Helloworld to fund the acquisition. The cash component of transaction is being funded via a fully underwritten placement and share purchase plan.
The acquisition is expected to settle in the first quarter of next year.
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