The Corporate Travel Management Ltd (ASX: CTD) share price is trading lower on Tuesday following an acquisition announcement.
At the time of writing the corporate travel specialist's shares are down 0.3% to $20.67.
What did Corporate Travel Management announce?
This morning Corporate Travel Management announced that it has entered into an agreement to acquire Texas based Corporate Travel Planners.
Corporate Travel Planners specialises in corporate travel services, with a focus on the University and Education sector.
Subject to customary conditions precedent, the acquisition will become effective from January 1.
How much is Corporate Travel Management paying?
According to the release, the initial consideration is US$18 million (A$26.5 million), which represents approximately 6x pro-forma FY 2020 net profit before tax. This consideration comprises ~10% shares (122,240 new shares at $21.33) and ~90% cash.
In addition to this, there is a further maximum contingent consideration of US$18 million (A$26.5 million), subject to the achievement of future profit hurdles.
Corporate Travel Planners is expected to contribute US$1.5 million (A$2.2 million) in pre-tax earnings to Corporate Travel Management's FY 2020 results.
Why is it buying Corporate Travel Planners?
Management considers Corporate Travel Partners to be a key strategic acquisition.
This is because it delivers key benefits to its North American segment. These includes increasing its scale, giving it exposure to a specialised and growing sector, earnings per share accretion, and industry knowledge.
In respect to the latter, Corporate Travel Partners' principal, Christy Prescott, has entered into an employment contract. This will allow the North American business to benefit from her knowledge, reputation, and expertise in the sector.
The company's managing director, Jamie Pherous, said: "CTP will be highly complementary to our organic expansion strategy and we believe that combined, we will forge a strong service proposition to the University and Education sector that will contribute strongly to the company's future growth in North America."
