Alex Patey, director at business advisory firm FRP Advisory, says improving economic conditions are encouraging further investment in travel
From a global pandemic to the recent global Microsoft IT outage, recent history has taught us to expect the unexpected. Currently though, the UK travel sector is buoyant having weathered the cost-of-living crisis well.
Indeed, the rebound from Covid has been so strong that the sector is now performing better in some quarters than before that transformational disruption took hold. Indeed, air traffic services provider NATS recently reported that the UK saw its one millionth flight this year in early June – the earliest this milestone had been reached since 2019.
Private equity leading active market
As a result of the sector’s impressive recovery from the pandemic, the last six to nine months have seen a similarly strong resurgence in M&A activity. While the volume of competition still has a little way to go – where there used to be four or five competitive offers come in for good businesses, there are now two or three – we’re seeing the number of companies and investors actively looking to undertake acquisitions materially higher than it was 12 months ago. The same goes for the number of businesses we’re seeing coming to or currently on the market.
In terms of the types of investors that are most prevalent in the market, from a baseline of very little activity in the immediate aftermath of the pandemic, private equity houses are now the most active – as many seek to capitalise on the aforementioned levels of competition in the market.
While trade buyers in the sector have been quieter, we’re slowly seeing their interest in sale processes increase and we expect that to continue.
With economic conditions improving, the UK debt market is also proving more supportive than in recent times, which in turn is helping to prop up deal values and ensure transactions get over the line, and also provide a viable funding route for operators looking to leverage for growth. This support will only strengthen with the anticipated fall in interest rates over the coming months.
Importance of implementing technology and a multichannel approach
Currently, the travel businesses attracting the most amount of interest from investors are those whose product offering is mid-to-high value and is seen to be resilient against market trends and fluctuations. Ultimately, investors are looking for companies to have all of the right elements in place to provide the best possible service to their existing customers and help win new ones that add to the pool of recurring bookers each year.
These include the integration of systems and services to support customers, booking agents, suppliers and other key stakeholders. The ultimate aim of any transformation should always be to improve the booking experience for customers, enhance the efficiency of operations and support a strong, trustworthy brand.
Customer loyalty and repeat booking rates remain key, which comes back to the strength of a brand and the quality of its marketing and customer experience.
For example, Google’s latest significant algorithm updates in September and March significantly hit the search rankings of companies that aren’t providing rich, relevant and interesting content. As such we’ve seen a renewed focus in top tier travel businesses focusing heavily on how they go about optimising their content production and SEO as a result.
Exposure to growth markets can also be an important selling point. With this in mind we’re seeing a number of UK travel companies trying to attract the business of US consumers. With the recent rise in US overseas travel – Statista reported that the number of US citizens travelling overseas increased by over 10 million in 2023 – businesses are targeting a similar customer profile to those they traditionally have here, specifically those over 40 and with higher disposable income.
Travel sector’s green credentials still have some way to go
Speaking about the broader market, ESG credentials have become a major consideration for investors and have increasingly shaped M&A decisions in recent years.
However, this is less the case in the travel sector, despite sustainability becoming more important to consumers. Indeed, while it is becoming more and more of a factor in every day purchasing decisions, it appears to not have yet become a deciding factor when it comes to the luxury of holidaying.
That’s of course not to say that it won’t do so in the future – particularly as we are already seeing more travel operators paying attention to decarbonisation through in-destination activities and government initiatives moving the sector towards greener aviation.
If the environmental side of ESG is getting less attention than it should, it’s pleasing to see the social side being considered in other ways, with more and more operators adapting their products for those with accessibility needs.
A number of agents are reporting increased demand for accessible holidays and this could potentially become a competitive advantage for those seeking investment.
Approaching the runway – how to prepare for a sale
As they capitalise on a boom summer for the industry, travel companies considering or getting ready for a sale process or seeking investment for growth should ensure they have a very clear and aligned set of objectives, both for the brand and its stakeholders. This will help owners and management teams clearly identify what they want to achieve and who they want to help them get there, to help them find the right partner or the right home for their business.
This is the first year since the pandemic that is considered to be a fully ‘clean’ year, without numbers being inflated by re-bookings or “revenge travel”. With positive sales, investment in services and a compelling story to tell, we’d advise operators in the sector to seek guidance as early in the sale process as possible to help them ensure the best possible outcome.