Description

The SPAC market has boomed and busted, leaving a wake of many broken deals in which SPAC sponsors overpaid for bad businesses with unachievable projections. Recent de-SPAC GBTG is an exception in the decimated SPAC market given it is an industry-leading company with a strong sponsor, a discounted valuation, and in an industry (corporate travel) that is still well below pre-Covid levels. As corporate travel demand rebounds, I believe GBTG’s stock can double over the next 2-3 years.

A detailed overview was provided last month at GBTG’s investor day and can be found here: https://investors.amexglobalbusinesstravel.com/investors/events-and-presentations/events/event-details/2022/Investor-Day/default.aspx

GBTG was formed when an Apollo-sponsored SPAC merged with Amex Global Business Travel. Amex Business Travel was spun-off from American Express (AXP) in 2014 a buy-out led by travel-focused private equity firm Certares. GBTG has the right to use the American Express name until 2033 and AXP owns ~35% of GBTG post-merger. Business travel spend has historically grown above GDP (4-5% per year) and ¼ of business travel spend goes through travel management companies (TMCs) such as GBTG. TMCs are B2B platforms that provide value to corporate travel customers by providing 1) a fully integrated travel and expense management platform, 2) improved travel experience/customer service (for both travelers and assistants) and 3) access to cost savings based on shared purchasing power. On the supply side, TMCs provide value to airlines and hotels by aggregating demand from business travelers (who are ~2x more valuable than leisure travelers). Amongst the TMCs, GBTG is the leading player and is 40% larger than the #2 player. ¾ of GBTG’s revenues are based on transactions (paid by both corporate customers and travel suppliers) and ¼ are based on more fixed revenues (account management, subscription fees and marketing revenue). By customer type, 55% of GBTG’s revenues come from global multinationals and 45% come from SMEs.

Although GBTG is the largest TMC, the industry remains fragmented with GBTG accounting for ~12% of TMC industry bookings. The fragmented TMC market gives GBTG the opportunity to consolidate the industry with GBTG having acquired nine companies since being spun-off from AXP in 2014. In the 5 years pre-Covid (2015-2019), GBTG grew revenues at an 11% CAGR (split 6% organic growth and 5% from acquisitions). The most recent purchase is Egencia, a SME-focused digital TMC which boosts GBTG’s ability to serve smaller companies. As a result of this transaction Expedia (the seller) owns ~15% of GBTG post-merger. GBTG’s large platform allows them to achieve substantial synergies from acquisitions leading to post synergy purchase prices of ~5x EBITDA. As a result of strong execution and acquisitions, GBTG’s EBITDA grew from $205m in 2015 (14% margin) to $462m in 2019 (20% margin).

While US leisure travel is already above 2019 levels, corporate travel is one of the few areas of the economy that is still well below pre-Covid levels. Corporate travel volumes continue to rebound as workers return to offices and international travel restrictions fall away. During the pandemic, video meetings displaced some business travel, and some business trips are not likely to return given the efficiency of video meetings. However, there are new forms of business travel that result from the remote work paradigm (e.g., remote workers having to travel to offices or offsite events on a regular basis) and there is pent-up demand for in-person industry and corporate events. Balancing the negatives vs. the positives, it is reasonable to assume business travel reaches 2019 levels by 2025, which implies that ~20% of total business travel demand has gone away. Note: applying pre-Covid annual business travel growth of 4% from 2019-2025 would imply 2025 levels would be 127% of 2019 levels and 100/127 = 79%, so this implies ~20% volumes do not return.

Unlike most SPACs, GBTG’s forecasts given at the time of their SPAC announcement have thus far proven conservative. At the time of the SPAC announcement, GBTG’s 2022 forecast assumed revenues at 58% of 2019 levels, but 2 weeks ago 2022 revenue guidance was raised to 63% of 2019 levels. The 2023 forecasts that GBTG published at the time of the SPAC announcement assume 70% industry recovery vs 2019 with GBTG’s 2023 volumes forecasted to be 80% vs 2019 as GBTG has signed net customer wins equating to ~10% volume growth vs 2019 levels. In the first 3 weeks of April 2022, transaction volume was 72% of 2019 levels, and improving, which makes the 80% level for 2023 look reasonable. This “base case” for 2023 recovery in an EBITDA estimate of $527m (22% margin).

GBTG provided a sensitivity analysis for its 2023 forecast which projects EBITDA of $846m when the industry recovers to 100% of 2019 volumes. As noted above, it is more realistic assume 2019 industry volumes are recovered by 2025 and thus I think of $846m as a 2025 target rather than a 2023 forecast.

At the current price of $8.35, GBTG has a market capitalization of $3.8bn, net debt of $567m and an enterprise value of $4.3bn. Thus, on the 2023 “base case” GBTG is trading at 8.3x EBITDA and on the full industry recovery case, GBTG is trading at 5.2x EBITDA. This a large discount to industry peer CTM (ticker CTD AU) which at its current A$3.1bn enterprise value, trades at 11.8x EBITDA assuming CTD AU’s estimate of A$265m of EBITDA with full recovery to 2019 levels.

In December 2019 Carlyle Group had agreed to acquire 20% of Amex GBT at an implied enterprise value of $5bn, or an EBITDA multiple of ~11x. Although Carlyle wriggled out of this deal when Covid hit, this mark provides a benchmark for the private market value of GBTG. In November 2021, GBTG acquired Egencia from Expedia, and adding the $750m paid for Egencia to $5bn results in a total “private market value” of $5.75bn, or an implied share price of $11.40.

At 10x base case 2023 EBITDA (70% industry recovery), GBTG shares would be worth about $10.50 (~25% upside). By 2025, GBTG could trade at $17 (double the current price) based on 10x fully recovered EBITDA (a 15% discount vs CTD AU’s current multiple).

Catalyst

Continued recovery of corporate travel

Greater visibilty post de-SPAC

More accretive acquisition opportunities