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Travel and tourism giants prepare for industry recovery with M&A activity

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The next six months, at least, are likely to bring more of the same for travel businesses in the UK and beyond. Although operators and the public may have pinned their hopes on the return of international travel this year, it now seems likely that a resurgence will take longer to fully appear. However, when international travel is once again safe and acceptable for tourism and business alike, there’s confidence that demand will surge.

It’s no surprise, then, that travel businesses with money to spend and private equity firms are willing to bet millions or even billions on acquiring smaller struggling operators. At a time when organic growth is all but impossible to achieve, M&A is a route to growth for travel firms with deep pockets. And now that the impact of COVID-19 is clearer than ever, there are plenty of deals to be done.

Smaller operators falling like dominoes

Some independent travel operators and smaller firms in the industry have reported that things are still looking very bleak as we move further into 2021. Indeed, travel operators such as Tucan Travel, STA Travel, VIP SKI and National Holidays have collapsed as a result of the pressures emerging from customers wanting refunds for trips they have booked but are not able to take.

Tucan Travel’s Chief Executive Matt Gannan, explained that the problems arise when payments have already been made down the supply chain and even smaller hotels and tour companies are unable to make refunds. He says: “many of the smaller overseas hotels and service providers that specialist tour operators support are in an even worse situation, they simply do not have the resources to repay what is owed to tour operators until they are able to reopen their business and earn money again.”

This domino effect has resulted in an unfortunate situation in the industry globally. Larger travel firms who can attract private investment and who have the ability to survive despite the current conditions, are now snapping up these struggling operators in large numbers. Those that are surviving on a knife edge are perfectly aware that a major resurgence in demand may arise in a year or two but, for many, surviving that long simply isn’t an option. The solution? Selling to the highest bidder.

American Express Global Business Travel (Amex GBT) has been making deals to purposely strengthen its position in the small to medium-sized travel sector. Its confidence in this area is testament to the widespread sentiment from the corporate travel industry that businesses will be, once again, sending their personnel around the globe to do business face-to-face. One such deal was its recent takeover of troubled travel agency Ovation Travel.

Ovation is US-based but operates offices in the UK under brands such as Chartwell Travel and Lawyers Travel. The business has been forced to furlough 500 staff members over recent months, putting it in a vulnerable position despite reporting sales of US$1.7bn (GB£1.2bn).

More deals are likely to be on the horizon for Amex GBT as it is thought to have plenty of cash in the coffers to buy up struggling agencies to bolster its own position. This is despite two high profile private equity investors, Carlyle Group and GIC backtracking on a previous decision to support the agency.

So why are business travel operators feeling so bullish about the future? It comes down to an expectation that, within a matter of years, and assuming COVID-19 makes a full exit, business travel will indeed recover to pre-pandemic levels.

The Global Business Travel Association (GBTA) issued a very positive report in February 2021 citing the vaccination rollout, improved trade thanks to greater stability in a post-Trump US and indications that the global economy is already bouncing back despite the ongoing pandemic. It did accept that COVID-19 had been ‘devastating’ for the industry, but insists the future still looks bright.

The UK government’s industry roadmap combined with this kind of positivity is driving the investment in the travel and tourism industry. Share prices in European travel stocks are consequently rising and are providing some validation for the increased M&A activity over the past few months.

Buyers looking to move into growth industries and regions

One operator who is busy acquiring complementary businesses that allow it to grow and position itself for the eventual recovery is EnjoyTravel.com. The Yorkshire-based car rental comparison site has made two notable deals in the past few months.

In December 2020 it bought out Big 7 Travel, a travel website with millions of users worldwide, but with a particularly strong userbase in the US. The purchase will further extend EnjoyTravel’s reach in terms of customers, but will also allow it to bring its booking technology to the US, in preparation for industry growth in the coming months and years.

EnjoyTravel.com’s group CEO Martin Mansell, said: “As we expect the travel industry to start coming back to life early in the new year, we believe Big 7 Travel will prove to be a magnificent addition to our business and are now set for strong growth in 2021 and beyond.”

EnjoyTravel.com has also targeted a UK operator offering complimentary services to its own in the form of Doorental.com. This is a small car brokerage business with a customer base mainly in Europe. The deal was made for an undisclosed sum but it’s clear to see that the acquisition helps EnjoyTravel to strengthen its position in the car rental market in Europe. This reflects the hope that this will be a growing area in the tourism space as more people opt for independent travel and shy away from public transport during the COVID recovery.

As well as car rental, aviation is another area where demand for independent operators is really taking off. With large aviation operators struggling to survive in the face of mass cancellations and demands for refunds from thousands upon thousands of customers, private jet operators are hot property.

One such in-demand private aviation firm is Signature Aviation, the UK-based private jet operator that has attracted takeover offers valuing it at as much as GB£5.1bn including debt.

In the latest in a run of offers, PE investors Global Infrastructure Partners, together with Blackstone and Cascade, have offered the firm 411p per share, some 65p per share more than its longstanding share price. This level of confidence reflects the overall feeling that private travel and private aviation, specifically, is not expected to suffer at all from the pandemic, on the contrary in fact. Other offers are in the offing from Blackstone rivals Carlyle, who may not be the only other interested party.

And then there is the domestic travel industry, for which recovery is perhaps, even more likely, at least in the short to medium term. As soon as Boris Johnson revealed his exit strategy from the early 2021 lockdown, also referred to as the UK’s ‘travel roadmap’, tourism operators reported surges in bookings overnight. British people are champing at the bit to get away on some form of holiday this summer and investors who have made purchases in the domestic tourism sector will, no doubt, be rubbing their hands as they watch the bookings pour in.

One such investor is private equity giant Blackstone. At the beginning of February, they confirmed a plan to buy out Bourne Leisure, which owns Butlins, Warner Leisure Hotels and Haven, making it one of the premier UK-based tourism businesses. The deal is thought to have been worth something in the region of GB£3bn, although the value hasn’t been confirmed.

Blackstone’s Lionel Assant, the European Head of Private Equity, explained, “We are long-term believers in the UK and are delighted to invest meaningful capital, despite recent uncertainty, to support the recovery of a COVID-impacted industry, and wider local economies.”

No doubt, Blackstone, and other investors with the ability to ‘support’ the travel industry will be reaping the rewards as we all flock to celebrate our rediscovered freedoms.

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