Finding bright spots in the UK consumer market in the face of an economic squeeze, as well as political and economic turbulence in general, is not straightforward. However, the travel sector has proved very resilient and is increasingly attractive to investors.
There have recently been a number of transactions in the sector funded by private equity houses, but also from alternative sources. For example, the UK hotel company Mr & Mrs Smith recently had an incredibly successful crowdfunding round, reaching its million pound target within one day on Crowdcube and closing at a figure just shy of £6 million. Other notable investments include the recent acquisition of specialist travel group On The Go Tours, which sells culturally immersive group escorted tours worldwide, by Alcuin Capital; the investment in Loveholidays by Livingbridge; Travel Counsellors by Vitruvian Partners; Travel Department by MML and Neilson Active Holidays by LDC to name a few.
As well as advising the founders of On The Go Tours on the transaction with Alcuin, the firm's Private Equity Group has recently advised on the following deals in the sector:
- the MBO of Hillgate Travel to Inflexion backed Reed and Mackay;
- the sale of the online ferry ticket aggregator Direct Ferries to Livingbridge; and
- Simpleview, a portfolio company of a US private equity firm (the Jordan Company), on the acquisition of the Tourism Media Group.
Partner and member of the Private Equity Group Nadim Meer commented: "Seemingly the UK investment community view the travel sector to be well insulated from Brexit fall-out. The fact that consumers continue to value their holidays and are prepared to sacrifice other areas of their discretionary spending in order to safeguard their time away keeps investment appetite and transactional activity in the sector strong."
What also makes travel attractive to PE is the combination of evolving consumer behaviour and the ability of new technologies to disrupt the market, and the growth opportunities that come with digitisation, domestic and international roll-outs and product and service development. In addition, travel businesses collect money from customers well in advance and pay suppliers after delivery, which means less working capital is needed to fuel growth.
Once an investment is made, private equity investors are rarely long-term holders and businesses sold to PE return to market again in a few years. Nadim said: "There remains significant available capital in private equity, but in order to stand out from the crowd amongst the new entrants and established companies looking for investment, the best prepared and best presented travel businesses will be the ones who succeed. 'Book early to get the best deal' is a commonly heard mantra and the motto applies to businesses in this sector as well. The sooner a business begins to prepare for a transaction the more organised and efficient they will be in running the process. By taking a forward-looking approach they will give themselves the best chance to present their business in the most positive way and increase the chances of reaching their desired destination."