Fund offers £700m vote of confidence in UK. Ian Taylor reports
Private Equity investor ECI has a new £700-million fund and is looking for travel businesses in which to invest.
ECI managing partner Chris Watt said: “It’s the first time in eight years we’re without a travel business in our portfolio, and it’s a situation we’re keen to rectify especially as we’ve just raised a £700-million fund.”
The London-based firm recently sold UK escorted-tours operator Great Rail Journeys to investment firm Duke Street.
Watt suggests the outlook for travel in the UK is as positive as ever. He said: “The UK economy has been strong, notwithstanding a somewhat uncertain outlook around Brexit.”
He noted: “Business certainty is increasing given the lack of progress towards a deal, and we saw the foreign exchange impact post-referendum.
“There could be a number of operating challenges for businesses around open skies and freedom of movement. [But] travel has proved remarkably resilient. It will bounce back.”
Watt also dismissed fears of a slowdown in the UK economy, saying: “UK economic growth is lagging behind the EU and US, but it’s still a supportive background for investment.
“I would back the travel sector to be relatively well insulated [from any fall-out from Brexit]. Travel spending is increasing – it is embedded in UK household spending.”
He added: “Capital is still fairly cheap [and] debt is relatively affordable.”
Watt described ECI’s recent fund-raising round as “relatively quick”, especially since it can take private equity firms a year or more to raise funds.
He said: “We raise a 10-year fund every five years. This is our 11th fund. We launched it in April and closed it in July.
“If you have a well-established team and a good track-record there is plenty of capital available. There is a lot of capital looking for deals.
“[But] we are competing against other firms. It’s a market and returns have to be strong.”
Watt added: “It is a vote of confidence in the UK post-Brexit. Is there investor appetite to support growing businesses in the UK? Absolutely, there is.
“We would hope to find another travel business to invest in within the next year.”
Investment across travel sectors
Private equity firm ECI previously invested in travel management company Reed & Mackay and travel technology platform Cartrawler, among others.
Partner Chris Watt points out ECI has held stakes in as many as three travel firms at one time in the past.
He said: “Provided the businesses are sufficiently far from one another in what they do and the customers they target, we’re happy to invest in multiple travel businesses.
“The UK domestic holiday market is a good bet. There is interest in that sector.
“We’ve had such a long hot summer – these holidays look increasingly good value, particularly from the foreign exchange point of view. I also expect UK inbound [businesses] to be attractive.
“There continue to be deals, some of which we looked at. We’ve invested in the travel sector over 20-25 years and there are always two or three businesses we’re looking at. [But] we’re selective in what we do.”
Watt added: “We have UK investments across the consumer, TMT [technology, media and telecom] and business service sectors. We look at the opportunities and compete to win them. Some we elect not to go for.
“We look for growing businesses in niche markets with the ability to weather a storm and manage through the economic cycle.
“That is something we see in travel, and we like working with ambitious managements to maximise business opportunities.”
Looking at recent deals, he said: “There have been two categories. One is businesses that are tech-enabled and high growth. [Online travel agent] Love Holidays is a good example.
“The second is more traditional but in an area where it is hard to replicate or [for consumers] to do it themselves. Great Rail Journeys is a good example.
“[Tour operator] Neilson is another. If you want to stay at a Neilson resort, you have to book with Neilson.”
Watt said: “There has been increasing private equity activity in the travel sector.
“You’re inevitably going to get more of these deals – it’s a natural consequence of the increasing reach of private equity.
“Sometimes we’re the first investor in – backing the founders [of a company]. Sometimes we buy from a private equity firm. About two-thirds of our deals tend to be a primary buy-out.
“There is a natural cycle around management succession and the cycle of investment capital.”
ECI sold Great Rail Journeys in July. Watt said: “We invested in March 2013 and came out with 3.6 times our initial investment.”
He added: “Great Rail Journeys was the clear global leader in its niche, serving an attractive demographic of travellers aged 55-plus who are keen to travel and take three, four, five holidays a year.
“When we invested it was selling exclusively to UK customers. We tapped into the Australian market and latterly opened an office in New York to address US consumers.”
He said the tour operator had also considered “if people are buying three or more holidays a year, but only one with us, what else are they spending on?
“Top of the list was river cruises, so we launched a river-cruise programme.”