Caisse makes another move into travel tech with $200M buy in Plusgrade

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The Caisse de dépôt et placement du Québec is continuing to bet on travel-related tech firms with a $200 million investment in Plusgrade, a pioneer in upgrade bidding whose signature product helps airlines sell unused inventory.

Plusgrade was founded in Montreal nearly 10 years ago when chief executive Ken Harris was still in his 20s. It launched in 2011 with its first partnership with two airlines and now has arrangements with 70 airlines worldwide including Air Canada, Lufthansa and Cathay Pacific.

The travel tech firm makes deals directly with the airlines and cruise lines, providing them with the software technology that allows passengers to bid on upgrades for unused seats or cabins.

With the cash injection, plans are to continue to expand “deeper and wider” into new international markets, and new market segments like the recent expansion into cruise ships, said Harris, who is now 37.

He said his firm’s technology taps into “ancillary revenue” streams that airlines have made a priority to drive profitability. But unlike paying extra fees for baggage, for example, “there is 100 per cent demand in the back of the plane to move into that (business class) cabin,” Harris said.

Morgan Stanley Canada Ltd. was retained to find new investors for Plusgrade, and Harris says he was attracted to the “international reach” and expertise of the Caisse, which invests around the world on behalf of pension and insurance beneficiaries.

The Caisse is buying a portion of its investment, which values Plusgrade at more than $600 million, from private equity firm TA Associates, which will continue to be a major investor in the travel tech firm.

Harris said he and other members of management would also remain large investors, though he declined to break down the exact holding in the private company. In addition to the head office in Montreal, which houses two-thirds of the firm’s staff, Plusgrade has offices in New York and Singapore.

It’s clearly the kind of long-term investment that we like

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Justin Methot, vice=president, large business, Caisse de dépôt et placement du Québec

The Plusgrade investment is not the first time the Caisse has staked a claim in the sector where travel and technology intersect. Two years ago, the Caisse invested $40 million in travel booking app Hopper.

The Caisse has a stated strategy of supporting Quebec companies that prioritize innovation to drive international expansion, and Justin Méthot, vice-president of large businesses for the Caisse in Quebec, said Plusgrade “ticks many of the boxes” of a good investment including solid management, a good market position and international aspirations.

“It’s clearly the kind of long-term investment that we like,” Méthot said, adding that the Caisse considers investment horizons of as long as 15 years. The Caisse will also have representation on the travel tech company’s board.

Plusgrade was a “first mover” in its market segment, and dwarfs competitors in terms of market share, Harris said, adding that the company has 25 per cent of global aviation market “under contract.”

The firm was ranked in Deloitte’s Canadian Technology Fast 50 list in 2016 and 2017, and also recently received a Deloitte technology leadership award, which recognizes the innovation in the Canadian technology sector.

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