Direct-sell companies and those that control their own product are the most attractive to private equity firms.
Speaking at the Association of Independent Tour Operators conference in Kerala, India, Kings Park Capital partner Jason Katz said direct-sell companies are popular as it is a cheaper way of doing business than paying agents commission.
He added: “You need ownership of the customer as it is so expensive to get customers.
“Direct-sell companies are very good as you don’t need to give 15% away to someone to find the customer.”
Katz said a company’s ability to exclusively control product is important as it gives a unique selling point for the business, particularly if it is different from what else is available.
He said: “With control of content, you don’t need to own it but you need to be able to argue you control it. Finding something very different is very important when you are looking to invest.”
Other important qualities to private equity businesses include clear growth prospects; high margins; cash generative businesses; an attractive capital model; to be travel specific; and have a specialist niche.
Katz said: “It is all about companies that can grow their market share and profitability.”
Investors will be put off by seasonality and advised travel companies to spread their booking patterns and have as broad a customer business as possible.
Katz said most private equity companies will look to double their investment in a five-year period and while they are not prone to being overly controlling once they have invested, they do expect business plans to be adhered to.
“If they’re putting £5 million in the business to help you grow they will want to know you are at least sticking to the plan you’ve agreed,” he added.