More than 170 UK tour operators have been branded “zombie” businesses which have seen their performance deteriorate to such as extent that they now exist merely to pay off their debts and survive.
The list of 177 operators is detailed in latest industry analysis by research company Plimsoll which provides a performance rating on 1,000 companies and highlights 109 seen as ripe for acquisition.
Author David Pattison said: “These companies are in a state, posting growing losses and, despite the obvious freeze in the credit markets, increasing their debts.
“They are ‘zombie’ businesses with debts at an average of 70% of turnover – they exist to service their out of control liabilities.
“Many are also using their suppliers to finance their growing losses, taking twice as long as to pay their bills as the industry average of 26 days.”
He added: “They are falling behind the rest and their productivity is well below the industry average. It’s hard for them to compete as their cost base is just too high. As a result, investment plans have been mothballed meaning their ageing assets are further restricting their ability to remain competitive.”
Pattison warned that not all will survive and those that do have a lot of pain ahead.
“The first thing they need to do is sort out their immediate finances,” he said. “They have to convince their banks and suppliers to keep supporting them or not pull the plug.
“If they can pull that off then the hard work really starts. They urgently need to stem their losses and control costs. The longer it takes them to address these issues, the harder and less likely it is they will ever fix them.”
But there are likely to be some attractive takeover targets hidden among the ‘zombies’. “Canny investors are seeing an opportunity to pick up a bargain,” said Pattison. “Some of these companies, stuck in a zombie state because of their balance sheet, have lots of potential for new owners to turn it around. We picked 109 companies that we feel have the most potential.”
For those unable to attract new buyers, “most have simply had their day,” claimed Pattison. “A combination of ageing assets, rising losses and increasing debts mean they are unlikely to attract a suitor before the receivers are called. They will be forced back into negotiations with their lenders to buy more time but their future doesn’t look good.”
Readers of Travel Weekly are entitled to a £50 discount off the Plimsoll Industry Analysis – Tour Operators. Call 01642 626400 for further details and quote reference PR/HP70.