Private equity firm Carlyle Group and Singapore sovereign wealth fund GIC are pulling out of a deal to invest in American Express Global Business Travel, a corporate travel booking service that is 50 percent-owned by American Express, according to published reports.
The investment would have given Carlyle and GIC a 20 percent stake in American Express GBT for $900 million and placed a value on the company of $5 billion. It’s just one of several deals so far that are being tripped up by uncertainties created by the coronavirus pandemic.
American Express GBT used to be entirely owned by American Express, but was spun off as a joint venture in 2014. At the time, the travel agency received a $900 million investment from a group led by Certares and a Qatar sovereign wealth fund.
But those joint venture partners in recent days traded lawsuits with Carlyle and GIC in a Delaware court over the fate of the more recent proposed Carlyle and GIC investment, first announced back in December.
Carlyle and GIC are believed to argue that coronavirus and the collapse of business travel globally have materially altered the deal’s conditions, and thereby allow them to walk away.
[Update: A Pitchbook article cites Carlyle as arguing that American Express GBT’s revenue plunge constitutes a material adverse condition, enough to gut the deal. Carlyle alleged that AmEx Global’s violations included using the financing Carlyle offered to cover operating losses and by instituting cutbacks and staff furloughs,” The PitchBook article said. “The loan was originally expected to go toward paying a dividend to shareholders and to fund an add-on. The MAC clause also made no mention of the buyer being forced to follow through in the event of a global pandemic.”
None of the parties are making public statements and the litigation is under sea for now, although there have been a variety of published reports about the transaction’s potential demise.
The recapitalization deal would have enabled some existing joint venture partners to sell a portion of their stakes, and enhanced Amex GBT’s ability to satiate its acquisition appetite. Whether or not the deal eventually goes through before a June 30 deadline, there will likely be a slew of business travel merger and acquisition activities throughout the sector in coming months, with potential corporate travel targets including CWT, BCD, Flight Centre and others because big players need liquidity and valuations have plummeted.
That is, of course, if potential investors have faith that business travel will eventually rebound and has not been permanently damaged — and if the terms would be advantageous.
Both Amex GBT and Carlyle, which withdrew financial guidance last month, have been adversely impacted by the coronavirus crisis, although both are believed to have ample liquidity.
Private equity firms such as Carlyle routinely seek to cash out of their investments within five years, but the company sought to invest in Amex GBT through a fund that would enabled an investment of a much longer duration, according to the Wall Street Journal.
“The firm’s maiden fund with that strategy was one of three Carlyle identified in its first-quarter earnings report whose asset values had tumbled so much that they wiped out performance-related fees it was receiving,” the Wall Street Journal reported.
There have been several travel-related deals that have failed to be consummated in recent weeks. Boeing bid adieu to a $4.2 billion deal with Embraer,; SoftBank backtracked on a $3 billion tender offer with WeWork; and Sabre withdrew its $360 million offer for Farelogix, although that was mostly because of regulatory complications in the UK.