Travel’s post-pandemic bounceback has underlined how in normal times it is one sector where the demand curve only ever goes one way – up. Time and again, investors have commented on how attractive the industry is, despite low profit margins. So what does 2024 hold for mergers and acquisitions?

Martin Alcock, Travel Trade Consultancy director, advises companies buying and selling, as well as on Atol. “We’re seeing lots of companies positioning for a sales process in 2024," he tells TTG. "They’re lining up advisors and putting out the feelers.

“It’s all off the back of exceptional results in summer 2023, and the continued momentum going into winter. Operators have a really positive story to tell, backed up by evidence that consumers are ring-fencing and prioritising travel spend.”

He highlights one category of company appealing to buyers: “The deals we’ve worked on in 2023 involved companies with very specialist product niches, with highly defensible market positions," he continues. "I think those sorts of businesses will always be attractive to buyers.”

’Momentum growing’

So what could go wrong in 2024? For a start, there is the economic and political situation, with higher cost of living and especially borrowing an issue, plus the crisis in the Middle East and elections in the UK and the US disrupting financial markets.

Deborah Potts, a director of Summit Advisory, warns: “Where external funding is required, high interest rates are proving a challenge. If a deal requires regulatory approvals from bodies such as the CAA, these have more challenges to overcome, especially if buyers new to the UK or travel industry are involved.”

Potts, though, is upbeat about 2024: “In terms of buyers, we do believe there is credible and growing private equity interest in specialist areas of the travel industry once more. If all the deals we are aware of complete, they will involve a mix of trade and private equity-based acquisitions.”

Potts had been expecting to announce “an exciting deal” in December, but events in the Middle East put paid to that. Nevertheless, she believes 2024 will be a strong year for M&A in travel, subject to known – and unknown – external events.

"Momentum continues to grow," she insists. "Each time a deal completes, there are generally disappointed buyers who have funds in place to deploy for other potential acquisitions. We are busier than ever with a host of quality sale mandates and a growing array of buyers. It’s an exciting time.”

Despite the financial after-effects of the pandemic, brands still seem willing to swoop if an attractive proposition is available. Kuoni parent Der Touristik fired the starting gun on 2024 with its deal for Solmar Villas, which came to fruition after the family-owned firm approached the group.

It can be difficult to fathom what’s going on behind the scenes, especially when companies are not quoted on the stock exchange. However, one likely deal very much out in the open this year is a new owner for Tap Air Portugal, the country’s national carrier.

In September, the Portuguese government announced it was seeking a buyer for a controlling stake in the state-owned airline, with all three major European airline groups expressing interest. British Airways parent IAG, which also owns Iberia and Vueling, could be the frontrunner given its existing route network to South America, although any IAG bid may attract the attention of regulators.

Private equity back

Nicola Sartori, Grant Thornton partner and head of consumer, retail and travel, is another who believes the rebound in overseas travel means the appetite for investment “is here to stay”. Trade buyers are rousing as demand returns, while private equity interest is also starting to rebuild, she says.

“We’ve seen a continual increase in M&A activity in the travel sector,” she explains. “This started in early 2023 and built through the year. We expect this trend to continue into 2024, and as a result, anticipate there being many more completed transactions through 2024 than we saw in 2023.

"The key driving factors are a combination of confidence that the strong results seen in 2022 post-Covid weren’t a blip, and the fact that despite the cost of living crisis, consumers are prioritising travel over other spend.”

She highlights a shift from opportunistic deals to strategic acquisitions, often to bolster current offerings or penetrate new markets. And Sartori believes the pandemic has thrown up another trend among private equity investors.

“Private equity has a renewed interest in the sector, and there are a number of travel companies currently held by firms, many for longer than expected because of the pandemic, that will be looking for an exit or the next round of funding in 2024 and beyond.”

She names luxury, experiential and adventure travel as likely investment targets, as well as sport tourism and cruising. Unlike Potts, she does not believe high interest rates are a challenge. “Higher borrowing costs shouldn’t present much of a barrier for the travel industry as it does to other sectors.

"Travel deals haven’t had significant amounts of debt put in to get the deal done, so the increased borrowing costs – which are now showing signs of reducing – are unlikely to have as much of an impact.”

However, as usual, there could be a spanner in the works, at least in the mainstream sector, with what some describe as the recklessness of the travel industry itself.

“The mass market is tooling up for its biggest ever year in 2024, introducing huge amounts of additional capacity,” says Alcock, who cautions the economic backdrop may expose misplaced optimism.

"I do question whether there’s sufficient demand to fill it all. We could well see a softening of pricing if the bookings don’t come in as expected. That would give investors pause for thought,” he says.

Conversely, there have been numerous examples where travel brands overstretch themselves and suddenly make themselves vulnerable to a takeover or seek a knight in shining armour.

If Alcock’s predictions are true, then come the autumn, we may see an acquisition spree of a different kind. Until then, owners with a For Sale sign up look like the ones in control.