Private equity (PE) investors remain keen on travel and have huge sums to invest, but it could take six months’ successful trading to free funds for mergers and acquisitions.
That is according to Harry Stoakes, partner at business advisory firm BDO, who told the Business Travel Association conference in Liverpool: “There are record amounts of PE funds uninvested – £500 billion in Europe and £2 trillion globally.”
Stoakes said: “The economy is not back to where it was yet, but job vacancies are at a record level [and] UK deal activity has rebounded strongly. The recovery has been so much faster than after 2008-09 because of government money going into the system.
“Overseas investment in the UK has accelerated, but a huge supply of money has not found a home yet. That is very good for business owners looking to sell.”
However, Stoakes added: “We don’t expect deal volumes [in travel] to go back to the glory days of 2014‑18 for a while. There is lower appetite among PE investors in business travel at the moment. PE looks forward and banks look back. Banks need to see six months’ trading activity in order to resume lending. Once they do, we’ll see deals.”
He noted: “The deals that are getting done are based on tech [because] business travel is a low‑margin space. You’re constantly under pressure to make your Ebitda (operating profit) margin. If you put two businesses together it’s easier to do that.”
Stoakes noted “some big deals done from the US this year”, citing TripActions’ acquisition of Reed & Mackay in May and TravelPerk’s purchase of Click Travel in July.
He said: “The sector has been through a really hard time, but if you’re a business with good tech it can be a seller’s market. When companies position themselves as tech businesses, not travel businesses, they can get higher investment.”
Stoakes suggested: “If Americans want to call themselves tech companies when they are really travel companies, and do deals for eye-watering amounts, it’s good news for business owners here.”
He argued: “This is still a very fragmented market. Business combinations are inevitable. It’s not going to be an instant bounce-back in business travel. [But] there will be a lot of businesses coming together to increase their scale and invest in technology.
“Outsiders [to travel] are looking in, seeing what has happened in leisure travel and thinking ‘We can replicate that in corporate travel. This is a sector with lots of people and processes. We can rip it up and use tech instead’.
“But sometimes you just need to speak to someone and the tech doesn’t always work.
“Next year we’ll start to see a pick-up. We need PE investors to be active to make bids competitive. So we need the banks to be lending.”