Following a prolonged period of limited mergers and acquisitions interest in outbound travel, the tide has turned this year, with 2024 expected to be the year where travel sector activity – particularly outbound travel M&A – returns to pre-pandemic levels.

The pandemic brought unprecedented challenges as outbound travel ground to a halt almost overnight. But while the handbrake was sharply applied to outbound M&A, domestic M&A accelerated as the so-called "staycation boom" flourished.

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This spurred several notable transactions, such as Sykes Holiday Cottages’ acquisition of Forest Holidays and CVC Capital Partners’ investment in Away Resorts. Travel Chapter and European Camping Group also attracted investment.

However, as soon as Covid travel restrictions were lifted, it was clear consumers were prioritising spend on foreign travel, despite the more challenging economic environment, with flight demand in 2023 rebounding to around 95% of pre-Covid levels, despite increased living costs and and higher overall travel costs.

A ’new normal’

The travel sector is proving extremely resilient. Despite global travel price rises of between 20% and 40% in 2023 compared with pre-Covid levels, consumer appetite to travel has remained strong as the long-term trend seeing consumers prioritise "experiences" over "things" continues to prevail.

It is great to see strong performance across the sector. Intrepid Travel achieved the best results in its history in March, turning around a £9 million loss during its 2022 financial year to post an £18 million pre-tax profit for 2023.

Elsewhere, Loveholidays grew its Atol by more than a million passengers year-on-year to more than four million – nearly double its 2019 licence (+191%), while Travel Counsellors achieved a record second quarter – its 13th consecutive quarter of double-digit growth. Hays Travel, meanwhile, managed to double total transaction value and more than triple its profits during its 2022/23 financial year.

We have seen particularly strong demand in the luxury, experiential and cruise – both ocean and river – sectors, particularly for brands targeting the over-55s market who have shown strong appetite to travel post-Covid and have perhaps been more insulated against interest rate rises.

Following the extended hiatus in M&A transactions, there is a huge backlog of small, medium and large outbound travel assets after private equity firms held off transactions for longer than anticipated.

Just this week, US asset management firm Apollo moved for The Travel Corporation, a deal that will end 104 years of that brand being in family ownership.

It is encouraging discussions between bankers, investors and management teams have now progressed from relentlessly questioning when will Covid be in the rear-view mirror to a general understanding that a sufficient period of trading post-pandemic has allowed trends to stabilise.

This acceptance of a "new normal" has given boards confidence to actively assess strategic options and open the door to what we believe will be an active travel M&A market in 2024 and 2025.

Strategic investment vs private equity

The door was prized open in January 2023 with the sale of Scott Dunn to Flight Centre for £121 million, and we expect this to accelerate significantly across 2024 and 2025.

This year has started quickly with a number of high profile transactions, such as L Catterton’s investment in AMA Waterways, shortly followed by Viking Cruises’ successful IPO in the US, pricing towards the top of the range ($24 per share) and raising $1.5 billion (£1.15 billion) – the largest IPO this year so far.

We have also seen Risk Capital Partners invest in specialist tour operator Simpson Travel, BGF in group travel operator Vosaio, and Mobeus in long-haul, escorted touring specialist Distant Journeys.

Travel is a sector where private equity has a demonstrable track record, and interest has returned in a manner distinct from the wider consumer sector, where there is a more cautious outlook. Lender appetite is also increasing as the resilience of the sector is born out in the numbers.

Strategic investors are also actively looking at travel M&A. While private equity investment led travel M&A in the decade pre-Covid, strategics sense an opportunity to compete, particularly in the new higher interest rate environment to add capability or complementary products, or to accelerate international expansion.

Investors will be searching for quality in the upcoming wave of M&A, with a few key areas of focus:

• The ability to demonstrate robust business models and sustainable competitive advantages – this has never been more important in a world where AI is accelerating at pace. Those brands with loyal customers who value product and service are particularly well-placed to defend against disintermediation;
  
  
• A need for microscopic attention to customer acquisition costs (CAC), with investors increasingly reviewing travel businesses on a life-time value/CAC basis. Those brands with strong direct to customer distribution and repeat rates are well placed to defend against rising PPC marketing costs;
  
  
• Scalability, both in business model and geography, will be crucial; and
  
  
• Careful consideration of potential regulatory changes and associated uncertainty with the CAA – this remains a big topic of debate and needs careful assessment in the run up to transactions

Strap in for the ride

It is certainly starting to feel like the starting gun has been fired on travel M&A. And after a few incredibly challenging years, it’s great to see momentum around the sector.

While transacting in the sector will not be straightforward, we expect to see high quality businesses transacting at strong multiples. Thorough preparation as always remains key, and standing out from the crowd will be important.

As businesses and investors continue to navigate the complexities of a rapidly evolving sector, it will be exciting to see how the rest of the year plays out.

Thomas Barnard is a director at Houlihan Lokey, a global investment bank with expertise in mergers and acquisitions, capital markets, financial restructuring and financial and valuation advisory.