The travel industry is changing shape, but investment and M&A activity will be back, says finnCap Group head of consumer Henry Wells
I am currently full of optimism – I have had my first Covid jab, I am looking at booking my next international holiday and I am starting my new role at the finnCap Group.
This cause for optimism certainly extends to the travel sector and that view is based not only on what I have seen over the last 12 months, but also the context of the last 15 years as an adviser in the sector.
Where is the travel sector now?
Being an adviser to the sector over the last 12 months has been an eye-opening, and often eye-watering, experience. The sector has not been treated well nor thoughtfully yet, despite this, the medium-term outlook feels strong.
I think sometimes we forget that the UK is a consumer-led economy, and one of the things that Covid has taught many of us is that enjoying time with family, friends and meeting new people in the context of leisure, travel, hobbies, retail and activity time is what makes us tick. We enjoy spending our hard-earned money on these things.
The demand side dynamics are as strong as they have ever been and while there will inevitably be winners and losers in the industry, new products, services, technology and routes to market are evolving as fast as they have done in the last 20 years.
Furthermore, I have been amazed and impressed by the sheer resilience of operators and business owners over the last 12 months, and combining this with future demand can make for an attractive investment opportunity.
There will of course be more significant challenges over the next six to 12 months, and as support via furlough and other schemes is withdrawn, the focus on cash-flow management is brought into ever sharper focus. The success or otherwise of the July to September trading period will define many, as they continue to grapple with regulatory renewals and the management of customer’s funds.
As the headwinds subside, the sector will emerge stronger, although a number of operators may have a different feel or ownership.
M&A and investment
While M&A transactions may not have been at the top of the 2020 agenda, there has been significant investment in the sector in working capital, balance sheets and technology and I have spoken to many investors who want to invest in the sector as they believe in the medium and longer term.
More generally, the investment markets are in a good place. In the public markets, equity raises and IPO activity will be a hot topic for consumer-facing businesses and there is certainly more room in the public markets for travel companies to raise capital to deliver their growth plans.
In the private markets, travel remains an exciting sector; although Covid has undoubtedly dampened some enthusiasm, the amount of money that has been raised, and not yet invested, continues to grow.
In summary, investment is there and M&A will be back – buyers of businesses will be asking some different questions and looking at some aspects of the transaction through a different lens, but with so many of the fundamentals remaining strong, it will just be a matter of time.
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