‘Feeding frenzy’ predicted over Tui specialist sell-off

A feeding frenzy has been predicted among potential buyers for Tui Group’s specialist division of tour operator brands which were put up for sale last month.

Speaking on a panel about the investment landscape in travel at this week’s Institute of Travel and Tourism conference in Tel Aviv, BDO partner Peter Hemington said there are desirable brands within the division, now known as Travelopia.

“Sources tell me that they [Tui] would like to sell it in one chunk. There will be a feeding frenzy. There are some great brands in that division,” he said.

Hemington said interest was likely to be led by private equity and Chris Mottershead, Thomas Cook UK and Ireland managing director, confirmed it would not be interested in buying any of the brands – saying the firm was not on the acquisition trail although it would look at opportunities if the right ones came along.

Hemington said the big travel corporates have been too distracted with other priorities like fending off disruptors to get involved in acquisitions, and that had allowed private equity to become a big player.

“Generally there’s too much money sloshing around the system for it all to find a home as quickly as investors would like. For the right kind of business prices are very high.”

Hemington said vendors of businesses always hype up the numbers so no business that is bought ever hits its forecast.

He said private equity investors are very demanding and expect to see a three-to-five times return on any investment over a three-to-five year period. He said achieving multiples in the double figures is possible for the right kind of business that has growth potential. BDO worked on the sale of specialist operator Scott Dunn which hit a 12.5 to 13 times multiple.

Hemington said: “I have worked with dnata who are canny buyers of good quality businesses and they have paid four, five, six times. They are very clever buyers and got good quality assets and not overpaid for them.”

Businesses that create an emotional engagement with the customer are the ones that generate higher margins, added Hemington, who singled out Audley Travel and, two of his clients, as being in that category.

Mottershead, who previously ran Aim-listed investor Travelzest, said: “The travel industry has massive opportunities for investors because the opportunities to grow dramatically and develop are huge. It’s still a fast moving and developing industry. It’s not for the faint hearted. You need to come in with your eyes open and realise you are joining a risk market.”

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