Travel company owners are benefiting from a “buoyant” mergers and acquisitions (M&A) market despite the approach of Brexit.
Harry Stoakes, partner, M&A, at BDO, said there had been a “flurry” of deals in the UK’s leisure travel sector this year, including On the Beach acquiring upmarket operator Classic Collection and Scottish agency Barrhead Travel being snapped up by US-based Travel Leaders Group.
“Because of what’s happening with the Brexit negotiations, people have been looking to do deals before the end of March 2019,” explained Stoakes.
“There might be a quiet couple of months until March but then there could be a surge of activity in the second half of next year after things settle down.”
Stoakes said the private equity industry was awash with cash for acquisitions, and travel was now viewed as being more attractive than other industries, such as general retail and restaurants.
“Private equity is not going to disappear – they have plenty of money, as they have done a lot of successful fundraising in the last two years, and they have to spend that money,” added Stoakes.
“With more money chasing travel companies, it’s a good time to be selling your business. Travel is more insulated than other sectors – online travel businesses can be very nimble with not so many fixed costs.
“It’s possible for travel businesses to produce a 20-30% gross margin, and for good businesses to make a 10% ebitda (earnings before interest, tax, depreciation and amortisation) margin.”
Stoakes predicted a mixture of trade and private equity acquisitions in 2019, including some deals between private equity firms, who typically look to sell investments every three to four years.
He also foresaw increased interest in UK domestic operators with more Britons taking “staycations”.
“We’ve already seen some of this activity with Forest Holidays [acquired by Phoenix Equity Partners] and more businesses like that will be changing hands,” said Stoakes.
“We had an amazing hot summer and exchange rates are not so great for people going overseas. Domestic holiday operators are doing very well and that triggers more M&A.”
