The outbound market is leading a significant increase in travel mergers and acquisitions, defying broader investment trends.
- Chris Photi of White Hart Associates reports an unprecedented surge in transactions, with no signs of slowing down.
- Private equity interest in travel is resurging, as demonstrated by recent acquisitions such as Simpson Travel by Risk Capital Partners.
- Travel is distinguishing itself from other sectors in M&A activity, despite global challenges like the Ukraine war and cost-of-living crises.
- Increasing regulation and high interest rates pose challenges to M&A in travel, yet the market remains buoyant.
The strength of the outbound market has catalysed a remarkable increase in mergers and acquisitions (M&A) within the travel industry. This surge in activity contrasts with the wider investment landscape, which has faced significant headwinds. Industry expert, Chris Photi of White Hart Associates, underscores this trend, noting an unprecedented volume of transactions currently underway and anticipates no immediate decline.
A critical driver of this trend is the revitalised interest from private equity firms. These entities, many of which had invested in the sector five to seven years ago, are now looking to capitalise on robust trading conditions. The acquisition of the specialist tour operator, Simpson Travel, by private equity firm Risk Capital Partners has indeed captured industry attention, serving as a bellwether for increased M&A interest.
While M&A activity in general faces obstacles such as the Ukraine war and global economic challenges, the travel sector’s trajectory remains distinct and resilient. Nicola Sartori from Grant Thornton highlighted this unique position during a recent address at the Barclays Travel Forum in London. She indicated that the travel sector’s strong growth has piqued considerable investor interest, setting it apart from other consumer sectors.
However, the travel M&A landscape is not without its challenges. The rise in regulation and doubling of interest rates, which has increased borrowing costs, presents potential hurdles. Emma Skyrme of Barclays notes that although lending costs have risen, the travel industry typically does not exhibit the high levels of leverage seen elsewhere, mitigating some financial stress.
Regulatory changes, particularly those concerning ATOL reform and the Package Travel Regulations, further complicate the scenario. Chris Photi remarked on the substantial impact these reforms could have on transactions, especially concerning cash flow and funding. Simpson Travel’s proactive step of segregating client monies into an escrow account exemplifies the cautious strategies employed by operators in anticipation of regulatory changes.
In summary, the outbound market’s dynamism is significantly fuelling M&A interest in travel, positioning the sector uniquely amidst global economic challenges.
