New Directravel Owners Aiming To Build A $1.5B TMC

Private equity investment firm Silver Oak Services Partners is looking to roll up several midmarket corporate travel agencies into a $1.5 billion travel management company with about $30 million in annual EBITDA, according to new Directravel CEO Ed Adams.

Directravel last month announced that Adams joined the company upon former owner Vince Vitti's sale of Directravel to Silver Oak. With a 30-year travel industry history and experience doing that sort of rollup at Navigant International, which in 2006 was acquired by Carlson Wagonlit Travel, Ed Adams last year returned to the industry after the expiration of certain contractual obligations and delivered the idea of a repeat to Silver Oak and other PE investors.

"There didn't seem to be a whole lot of acquisition activity going on in the North American travel space, and there was a ton of private equity money looking for people with a proven track record and an idea," Adams said in a recent interview. "So I approached eight or 10 PE firms with this concept of going out and building and buying a corporate travel management platform. The idea is to buy midmarket, well-run agencies, put them together under a common platform and use the increased volume to drive synergies, add value to customers, invest in technology and systems to better serve the customer, grow the top line and look for elimination of overlap to drive higher numbers."

Noting there are about 70 TMCs on his target list, Adams said Silver Oak Partners offers equity and an "ability to leverage on senior debt."

Two Silver Oak executives, managing partner Dan Gill and vice president Dave Bornhoeft, have joined the Directravel board.

"There are a lot of agencies out there that would like to take most of their chips off the table and keep their people intact," Adams said. "So many of these agencies have been well-run for a lot of years and living through the ups and downs of world events and economies. It's not dissimilar to what we saw with Navigant--there wasn't a clear exit strategy for the agency owners and they were concerned about keeping their people whole.

"We're looking at adjusted EBITDA and we're paying a multiple on that," Adams continued. "At Navigant that ranged from 3.5 to about 5.5. That's what we're looking at today; we want to pay what's fair."

Adams hinted at continuing the regional management approach he ran at Navigant--in which five U.S. divisions with their own leadership controlled their region's customer relationships, sales, budget and profit and loss. Yet, Adams is looking to correct some of the mistakes he attributed to the Navigant years, including too much capital expense for technology, too little standardization in the mid-office and too little flexibility on costs to support online versus offline business.

"We had a huge IT department with lots of servers, and I believe that today we can rely on cloud computing and do a better job of using third-party software for fulfillment," Adams said. "We were tech-heavy at Navigant, and I don't think we need to do that this time."

Slated to emphasize the Directravel branding, the new entity will attempt to consolidate mid-office and back-office technology, but it is not aiming to standardize on one global distribution system, Adams said.