January spending fell for the first time in five years and firms from Primark to Jamie’s Italian restaurants have felt the pinch.
But if it’s tough out in leisure land, travel firms and investors aren’t getting the memo. Unlike their retail counterparts, the largest UK travel companies announced a strong set of first quarter trading results to their investors last week. Despite the difficult economic conditions, travel stocks have outperformed the rest of the UK stock market by more than 40% since the start of 2017.
Tui and Thomas Cook turned in solid trading results, cutting their winter losses in the process. Not to be outdone, Jet2.com owner, Dart Group, announced an unexpectedly rosy position for its current financial year. That said, if Dart Group’s share price took off like Elon Musk’s Falcon Heavy, then On the Beach was Starman, already cruising in its cherry-red Telsa on a heliocentric orbit around the sun. The OTA’s shares have doubled in value since this time last year.
Private equity investors are loving travel’s mid tier too. In the past three months alone, Silverfleet Capital invested in Riviera Travel; MML Capital invested in The Travel Department; and Wyndham Worldwide reached a deal to sell its European group (Hoseasons, James Villa, Cottages.com et al) to Platinum Equity.
We’ve seen this trend over recent years, and if the press rumours of recent weeks are to be believed, there will be three or four more big private equity-backed transactions completing over the next quarter too.
A bull market like this is driven by two opposing fears in the minds of investors. On the one hand, there is Fomo (fear of missing out). Every investment fund wants a travel business in their portfolio at the moment and Fomo is leading them to bid high and jump early. On the other hand there is Fobat (fear of backing a turkey), a term entirely made up by me. No investor wants to be summoned to their credit committee to explain why their golden goose turned out to be a grade A Bernard Matthews specimen. These twin fears torment any investor, and at the moment Fomo is beating Fobat hands down.
The great news for the industry as a whole is that all this investment in large and mid-tier businesses creates a trickle-down effect.
Almost all of the transactions we have worked on in the past two years have included an acquisition facility – an extra line of credit that can be accessed at short notice to fund purchases.
The transactions have spawned a new category of “buy and build” investor, scouring the market, looking to fill any gaps in their product portfolio with the right bolt-on purchase. Smaller, niche operators looking for investment are in a great place to take advantage of the positivity.
Martin Alcock is director of the Travel Trade Consultancy
