Grant Thornton’s Nicola Sartori says travel investors are back with enthusiasm but deals are taking longer to complete
Investor appetite for travel assets remained strong in the second quarter of 2024, according to our analysis of Mergermarket data.
Though deal volumes were up 80% compared to the same quarter last year, we’ve observed that transactions are taking longer to complete versus the pre-Covid era.
Firstly, travel business models have refined since the pandemic. Many businesses used the enforced downtime of lockdowns and travel bans to create efficiencies and drive margins. Potential investors are taking time to scrutinise these new lean operating models to ensure they’re sustainable.
Secondly, coming into 2024, travel businesses have reported changes in booking patterns, again versus pre-pandemic patterns, as consumers continue to grapple with the cost of living. Though this hasn’t translated into a loss of sales, the different trading patterns create an extra layer of complexity for due diligence.
From a capital markets perspective it was disappointing to see Tui move its listing from London to Frankfurt. Recent changes to the UK Listing Rules will hopefully lead to other companies considering London public markets for new listings and stem further losses. These factors are postponing rather than preventing deal completions, and we expect equal (if not higher) deal volumes as the year progresses.
Investors’ enthusiasm for travel assets held firm in the second quarter of 2024. There were 18 deals involving UK companies, level with the previous quarter and an 80% uplift on the same period last year.
PE M&A activity decreased by 25% in Q2 2024 compared to Q1 2024. We don’t view this quarter-on-quarter dip as significant, as the wider view shows activity increased by 200% compared to Q2 2023.
PE houses mean business (travel)
Three Q2 deals involved PE snapping up corporate travel operators, reflecting that business travel has reached a ‘new normal’ post-pandemic. Investors targeted businesses with proprietary technology or a niche, like arranging travel for the entertainment industry.
In May 2024, BGF invested in Vosaio Travel, a global specialist in group travel for business customers. It employs teams in 25 countries and has a proprietary booking system. It will use the investment to expand its senior leadership team and incorporate artificial intelligence into its technology.
In April 2024, ECI Partners acquired TAG, which provides travel management to entertainment and business clients. The deal secured a quadruple return for TAG’s previous PE owner, Apiary, which grew TAG through eight acquisitions. TAG’s specialists provide bespoke, high-end service to some of the biggest names in music, film and TV production, as well as C-suite and corporate executives.
In June 2024, UK-based travel and event management specialist Reed & Mackay entered the Italian market by adding corporate travel and events business Regent International S.P.A. The deal marks the sixth acquisition by Reed & Mackay’s parent company, Navan Group (formerly TripActions), since 2021. US-headquartered Navan is backed by US venture capital. Its latest (Series G) fundraising valued the company at USD 9.2 billion.
Going for growth
Venture capital has begun to return to travel M&A, displaying confidence that the sector will continue to perform over the next five years (a typical exit cycle).
In May 2024, SME equity investor Mobeus backed the management buyout (MBO) of Distant Journeys, which provides “flexible escorted tours, combining the delights and camaraderie of group travel, with the flexibility to allow for individual tastes.” Distant Journeys will use the £15.2 million injection to expand into new destinations and upgrade sales and customer engagement systems.
In June 2024, online booking company Heidi Ski completed a £5.6 million growth funding round led by Mercia Ventures. Heidi’s technology platform allows travellers to create their own ski package, choosing departure dates, location and features such as proximity to slopes. It was founded by two brothers who felt ski packages didn’t offer customers enough flexibility.
Heidi’s revenue has quadrupled to £37 million since 2022, and it’s now the UK’s third biggest ski operator. Its success lies in its innovative use of technology to target an underserved niche, as well as strong consumer demand for experiential holidays.
Hotel deals dominate travel M&A
Hotels accounted for 10 of Q2 2024’s 18 deals. Portfolio transactions continued to drive hotel M&A, including the following deals:
In May 2024, Landsec disposed of its entire portfolio of 21 hotels to Ares and its operating partner, EQ Group.
In June 2024, funds of US PE group Blackstone Real Estate acquired Village Hotels, whose portfolio comprised 33 UK hotels, from affiliates of KSL Capital Partners.
While hotel trading has largely been positive, average daily rate (ADR) and occupancy growth have slowed in recent months. Coupled with various ongoing cost headwinds, many operators could see profit margin erosion over the coming months. This may lead to hotel owners with stressed capital structures seeking strategic disposals to reduce their debt liabilities.
Higher construction and financing costs continue to depress new-build hotel development. Consequently, investors are seeking value-add and conversion opportunities to develop their portfolios.
Overall, we expect the positive sentiment and momentum for hotel transactions to continue in the second half of 2024. Potential interest rate cuts later in the year are expected to reduce the price expectation gap between buyers and vendors. In addition, PE firms and institutional investors have significant available capital to deploy in the sector.
Deals with wheels – a busy quarter for coach and bus operators
Q2 2024 proved to be popular for M&A involving coach and bus tours. In May, coach operator Caledonian Leisure added Tartan Tours to its portfolio. The following month, Welsh coach-tour and hire business Creigiau Travel became an employee-owned trust (EOT).
In May 2024, Big Bus Tours added Tour Dubai to its portfolio of international operators. PE group Exponent bought Big Bus Tours in 2015. Originally an open-top bus operator, it has expanded its offer to other sightseeing experiences, including local boat cruises and digital walking tours.
Cross-border activity
Foreign investment accounted for six (33.3%) of Q2 2024 transactions. US investors led four deals, while entities from Luxembourg and Israel made one investment each.
UK buyers made three (17%) non-domestic acquisitions in Q2 2024 in Italy, the UAE and Spain.
Deal volumes in the first half of 2024 show that investor appetite for travel assets has well and truly returned. We expect this to continue as the year progresses and lending conditions improve.