Plusgrade LP has completed a US$385-million takeover of publicly listed Points.com Inc., combining two Canadian digital companies that help travel giants make billions of dollars of ancillary revenue.
Plusgrade said Thursday it had completed the deal, announced in May, paying $25 per share in cash days after Points shareholders voted for the takeover by way of a plan of arrangement. The deal was approved Monday by the Ontario Superior Court of Justice.
“Plusgrade is on a mission to become a global ancillary revenue powerhouse,” Plusgrade CEO and founder Ken Harris said in an interview. The deal “is an incredible opportunity for us to solidify our position as the leader” in the space.
Privately held Plusgrade, a Montreal company backed by Quebec investment heavyweights Caisse de dépôt et placement du Québec and private equity firm Novacap, partners with airlines, passenger rail and cruise ship operators, offering a digital platform that allows travelers to buy or bid on seat or cabin upgrades and the right to buy empty seats next to them. The 170-person company earns a cut of every transaction.
Points PCOM-Q is a Toronto-based provider of a digital platform used by travel and accommodation providers to increase the accrual or redemption of the points or miles of their loyalty programs. Points works with 60 programs – including Aeroplan, Southwest Airlines’ Rapid Rewards, Marriott Bonvoy and Chase Ultimate Rewards – to facilitate the gifting, sale and transfer of points and encourage redemption for goods and services beyond flights and rooms. Increased program use translates into greater revenues and lower liability costs for Points’ travel partners. Points has 350 employees.
The combined entity will generate more than US$3.5-billion in revenue for its 140 partners this year, of which it gets an undisclosed minority cut.
“We believe this combination is transformational,” said David Lewin, a senior partner with Novacap, adding that Plusgrade “is still on the ground floor of our game plan” to both expand sales and buy other companies. “We’re creating a multibillion dollar Canadian-based technology leader.”
The deal comes as both Plusgrade and Points continue to rebound from the pandemic, which hurt their business when global travel all but ground to a halt. Plusgrade was profitable, growing fast and generating about US$50-million annually heading into the pandemic, just over a year after the Caisse invested US$200-million in late 2018, valuing it at US$600-million. Points.com had been profitable 10 out of the previous 11 years and had seen annual revenue increase fivefold, to US$401-million, over that period.
In the first year of the health crisis, Plusgrade’s revenue plummeted by more than 90 per cent, though it weathered 2020 with few layoffs thanks to a strong balance sheet and other cost-cutting measures, Mr. Harris said. Points’s 2020 revenue fell by more than 50 per cent, to US$196.9-mllion.
But as easing of gathering and movement restrictions began unleashing pent-up demand for travel, Novacap last year invested in Plusgrade, paying an undisclosed amount to buy out early backer TA Associates. It also joined frequent co-investor the Caisse, as it did when backing other Quebec-based industry leaders Nuvei Corp. NVEI-T, a digital payments company, and pipeline testing technology company Eddyfi NDT Inc.
Plusgrade “fits perfectly” with the Caisse’s dual mandate to make investments that both deliver returns for depositors and support Quebec’s economic development, said Jacques Marchand, the institution’s managing director, private large capitalizations in Quebec. “It’s really in the middle of the fairway of what we do here,” he said.
Mr. Harris said the deal was largely funded by an equity injection from the two Quebec institutions and himself, plus an undisclosed portion of debt.
Mr. Harris said Plusgrade’s revenue is now “way ahead” of pre-pandemic levels, though he declined to share specifics. Points saw revenue rebound last year to $345-million and cut its net loss to US$340,000 from US$5.4-million in 2020, and revenue in the first quarter was up nearly 100 per cent, to US$127.4-million, while the company eked out a US$1.3-million net profit in that period.
“People are excited to prioritize experiences and travel,” said Mr. Harris. “We’re incredibly bullish on the travel industry.”
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