The Corporate Travel Management Ltd (ASX: CTD) share price remains in a trading halt on Tuesday whilst it undertakes a capital raising.
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What is Corporate Travel Management raising?
This morning Corporate Travel Management revealed that it is raising $375 million via a fully underwritten accelerated non-renounceable entitlement offer to fund a major acquisition.
Under the entitlement offer, eligible shareholders will be able to subscribe for 1 fully paid ordinary share for every 4.03 shares they hold on Thursday 1 October 2020 at the issue price of $13.85 per new share.
The offer price of $13.85 represents a discount of 14.3% to its last close price of $16.16.
What is the company acquiring?
Corporate Travel Management has entered into a binding agreement to acquire 100% of Travel & Transport, Inc. for a cash and debt free enterprise value of US$200.4 million (A$274.5 million).
Travel & Transport is a leading US travel management company that was founded in 1946 and is headquartered in Omaha, Nebraska.
It generated total transaction value (TTV) of US$2.8 billion (A$4 billion) and pro forma EBITDA of US$29 million (A$41 million) in calendar year 2019. Approximately 60% of its TTV came from the corporate air travel market.
Management notes that Travel & Transport's customer mix is highly complementary to its business, with a focus on professional services and healthcare clients. It has low customer concentration, with the largest customer representing only 2.5% of 2019 air volumes. Furthermore, its top 50 customers represent less than 45% of 2019 air volumes.
According to the release, the transaction is expected to be approximately 10% earnings per share accretive on a pro-forma calendar year 2019 basis (excluding synergies).
When including estimated full run-rate synergies of US$18 million (A$25 million), the transaction is expected to be approximately 30% earnings per share accretive.
Corporate Travel Management's Founder and Managing Director, Jamie Pherous, commented: "We are excited to bring our two companies together under the CTM umbrella. Travel & Transport has an incredible reputation and a long history of success within the global travel industry, and we have shared views about delivering personalised service and proprietary technology to generate strong returns for clients on their travel investments."
Trading update.
In addition to the entitlement offer and acquisition, management provided the market with a trading update.
It advised that COVID-19 has had a material impact on both companies. Transaction volumes for Corporate Travel Management and Travel & Transport are currently down 25% and 13%, respectively, compared to the prior corresponding period.
Over July and August 2020, the pro-forma group generated average revenue of A$14 million per month and an average underlying EBITDA loss of A$5.7 million per month.
Further, the average pro-forma group cash burn was A$7.5 million per month over the period.
Fortunately, the company is well-placed to ride out the storm. Its net cash position post equity raising will be A$126.8 million, with 100 million pounds (A$181.8 million) of additional liquidity via a committed undrawn finance facility.
