The Canadian Press

Aeroplan gets U.S. foothold with purchase of loyalty marketer Carlson Marketing

Tue Nov 3, 5:01 PM

By Luann Lasalle, The Canadian Press

MONTREAL - Groupe Aeroplan Inc. (TSX:AER) has gained a U.S. foothold with the purchase of customer loyalty company Carlson Marketing as the company pursues more international growth.

Aeroplan, a loyalty rewards program spun off from Air Canada (TSX:AC.A) said Tuesday it had paid $188 million for Carlson Marketing, a global customer-loyalty company.

CEO Rupert Duchesne said the acquisition gives Aeroplan a substantial source of revenue and diverse clients around the world.

"It substantially adds to our strength as we try to grow elsewhere in the world," Duchesne said in an interview from Minneapolis where Carlson Marketing is headquartered.

Aeroplan had been looking for a presence in the United States since 2005, Duchesne said, and had previously considered small scale acquisitions and investments in frequent flyer programs in the United States.

"The only logical way in, rather than trying to build something up from scratch itself was to buy the market leader."

Aeroplan said Carlson Marketing will be run as a separate division from Aeroplan's other businesses.

Carlson, which doesn't publicly name its clients, runs U.S.-based loyalty programs in areas such as financial services, automotive and transportation, among others, he said.

The company has a presence in 14 countries, including Spain, the United Kingdom, Australia, Brazil, Hong Kong, Singapore, Dubai and Kuwait. Duchesne said it will soon be expanding into India, another large and fast-growing consumer market.

However, the United States is considered an important key to global expansion due to the size of its consumer market.

"It is our belief with the acquisition of Carlson Marketing we will be well positioned to further penetrate the U.S. across all of our lines of business," he told a conference call with analysts.

Analyst Kenric Tyghe said Aeroplan needs a U.S. presence because its biggest competitor is U.S.-based Alliance Data Systems Corp., which owns the Air Miles reward program in Canada.

"That U.S. competitor does not and has not ever been able to successfully establish the equivalent to the program in the U.S., given how fragmented the U.S. loyalty market is," said Tyghe, who follows consumer products and retail at Raymond James in Toronto.

Duchesne also said the acquisition provides an attractive return, giving Aeroplan the flexibility to make future investments and to consider a potential share repurchase in 2010.

Aeroplan said the acquisition will increase it revenues by about 45 per cent to more than $2 billion.

He also said Carlson Marketing is widely recognized for innovation when it comes to understanding consumer behaviour, rewards and data analytics.

One area that Carlson Marketing has experience that Aeroplan is hoping to tap into is its digital marketing expertise, particularly the use of social media.

"I am not saying we have the answer to that, but I am saying we have a suite of capabilities where we will be one of the early first movers in trying to link those two critical areas."

He noted that 70 per cent of Aeroplan's rewards are distributed and purchased by plan members online.

Carlson president and CEO Hubert Joly said the acquisition frees up resources for Carlson so that it can increase the growth of its hotel, restaurant and travel business at a time when "significant" opportunities exist.

The Minneapolis-based firm also has relationships with brands in the high-tech, consumer packaged goods and pharmaceutical sectors.

The deal is expected to close by early December.