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Why Flight Centre Travel Group Ltd shares could soar higher today

What: Shares in leading ASX-listed travel agency Flight Centre Travel Group Ltd (ASX: FLT) could be set to head higher today after the company announced that it has offered to acquire Travelonomy Limited, an Irish incorporated company which operates the US-based StudentUniverse.com group of companies.

So What: While Flight Centre has primarily grown organically, the group has a reasonably good track record when it comes to making bolt on acquisitions.

Here are the key details of this deal –

  • Travelonomy’s board has recommended the deal
  • An acquisition price of US$28 million for 100% of StudentUniverse.com (SU) and the potential for additional payments should SU achieve certain profit milestones during the 2016 calendar year
  • Flight Centre plans to use company cash to fund the acquisition, which is expected to be earnings accretive during financial year 2016

Now What: SU generates more than US$250 million in sales annually which will add meaningfully to Flight Centre’s US-based operations.

Importantly, the acquisition adds another growth segment to the group…

  • SU boasts a strong online presence and has a key focus on the student and youth travel sectors.
  • Flight Centre’s management noted that the acquisition would “fast track FLT’s growth in these two key travel sectors.”
  • With the student and youth market estimated to be worth over $180 billion annually there is an obvious reason for Flight Centre to specifically target this segment.

Indeed, the travel sector in general appears to currently present some exciting opportunities. Shares in Qantas Airways Limited (ASX: QAN) have soared 44% this year and the share price of Corporate Travel Management Ltd (ASX: CTD) is up nearly 9%.

With Flight Centre’s share price only gaining around 5% in calendar year 2015, this latest acquisition announcement could present an opportune time for investors to revisit the stock.

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Motley Fool contributor Tim McArthur has no position in any stocks mentioned. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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