Travel M&A review: Autumn 2024

The record number of passengers who passed through Heathrow this September makes pandemic-era travel restrictions seem like a distant memory. However, investors are still untangling almost four years of evolving trading data when evaluating travel assets.

The M&A travel news continues to be positive, but working out what new trading patterns are can take time, especially working through unusual booking behaviour from cautious consumers – 62% of travel companies expect later bookings next year as holidaymakers hold out for bargains.

The result is that transactions are continuing to take longer to complete than usual.

Despite this, the mood at the recent Association of British Travel Agents (ABTA) travel industry M&A conference, hosted at our own offices, revealed confidence in the sector from private equity (PE) and trade buyers.

Our Q3 deal data reflects this, with strong volumes for deals involving mid-market and smaller companies.

The improving economy and increasing distance from COVID-19 will continue to give buyers the data and confidence to pursue larger deals as the year closes.

Changes to capital gains tax

A rise in both capital gains tax (CGT) and the tax rate applied to carried interest had been widely expected in October’s Budget, but the specific percentage remained a key unknown. Effective immediately, the Government has announced that the highest rate of CGT will rise from 20% to 24%, and from April 2025 the tax on carried interest will also rise from 28% to 32%.

While any increase in taxation has an impact, the level announced still presents an attractive environment for management incentives and investors and is unlikely to discourage ongoing deal activity. The revised rate still represents a favourable reward for taking entrepreneurial risk and, indeed, entrepreneurship continues to be encouraged with Business Asset Disposal Relief (BADR) being retained, albeit with the rate increasing over two years to 18%. We, therefore, expect the impact on M&A to be less severe than anticipated, with the announcements ensuring the UK remains an attractive and internationally competitive environment for investors. 

The bigger impact on the deals market will likely come from the increases in Employers’ National Insurance Contributions (NICs) and the national minimum wage, and the subsequent impact on underlying earnings and valuations.

Also highlighted were the Government’s plans to reform carried interest rules to make them "simpler, fairer, and better targeted" from April 2026. This gives fund managers sufficient time to fully understand the proposed changes to ensure that both existing and new structures remain compliant with any updated HMRC guidance.

Deal volumes

Announced M&A activity in travel and accommodation quarterly (UK targets or acquirors)

Private equity interest

Announced PE activity in travel and accommodation quarterly

PE interest in the sector remained strong, accounting for 40% of deals. There was activity from pure PE buyers, such as Piper and Mayfair, as well as PE-backed buyers, such as eSKY, in which MCI Capital has a majority stake.

Piper buys specialist tour operator

In July 2024, Piper Private Equity bought Martin Randall Travel, a company specialising in art, architecture, and history tours and events, which is set to turnover £17 million in 2024. The acquisition expands Piper PE’s portfolio of travel brands, which includes another cultural-adventure brand, Rabbies.

Mayfair means business 

In September 2024, Mayfair Equity Partners invested EUR 35 million in corporate travel firm BizAway. Mayfair’s travel investments also include group travel specialist Tour Partner Group.

Hotels

Some 40% of Q3 UK travel deals involved hotels.

In September 2024, BC Partners Real Estate and Hova Hospitality announced the acquisition of a portfolio of 30 German hotels in partnership with B&B Hotels. The portfolio was sold by AccorInvest.

In July 2024, Northern Ireland-based hotel operator McKeever Group added The Lodge Hotel (also in Northern Ireland) to its portfolio.

In July 2024, French budget hotel chain B&B Hotels, which is majority-owned by Goldman Sachs, acquired five hotels in Birmingham, Ipswich, Inverness, Warrington, and Derby. B&B entered the UK market in February with a lease on a site in Heathrow Terminal 5. It plans to open 100 hotels in the UK by 2035.

In July 2024, Scottish tour company Caledonian Leisure completed the purchase of the New Southlands Hotel in Scarborough. The hotel will take its flagship Caledonian Hotel Collection to four sites.

In the same month, Turkey-based hospitality group Kaya completed its first international acquisition with the purchase of the Great Northern Hotel in King’s Cross, London. It has announced plans to expand into other European destinations.

The outlook for the rest of 2024 and going into 2025 remains positive, with lower interest rates and slowing inflation expected to boost demand for hotels from investors and consumers. Some pockets of distress remain, mainly undercapitalised, regional, independently-owned hotels where operators are continuing to navigate staffing and cost pressures.

Travelers still want in-person service

Technology remained a deal driver in Q3 2024. Transactions included the sale of eShores, a company that markets its holidays on social media, and Polish travel tech firm eSky’s £30 million acquisition of Thomas Cook from Chinese investors.

However, it’s far from game over for in-person operators. The number of people booking through a travel professional (travel agent or tour operator) is creeping up, according to ABTA. Its Holiday Habits report showed 38% of people booked their holiday this way in the year to August 2024, compared to 34% in the prior 12 months. Some 43% of respondents said this was so they could access help or support if something went wrong (up from 34% in the prior 12 months).

Meanwhile, a recent trading update from Hays, the UK’s largest independent travel agent with c.470 high street branches, showed a 43% jump in group pre-tax profits in the year to April 30 2024. Its owner and chair, Dame Irene Hays, has said the group is looking to acquire more sites this year.

The balance between online and in-person depends on the business model. BizAway, for example, supports its proprietary booking platform with 24/7 multilingual in-house customer service.

International investment 

UK-based entities made three (20%) non-domestic investments in Q3 (two in Italy and one in Germany), up 3.4% on Q2. Domestic deals accounted for six deals (40%).Domestic deals accounted for six deals (40%).

Overseas buyers target aparthotels

In August 2024, Swedish firm Pandox announced the acquisition of three Residence Inn by Marriott aparthotels in central London for approximately £230 million. Initially, the hotels are expected to contribute approximately £34 million in revenues and £17 million in net-operating income on an annualised basis.

In July 2024, Numa Group, a German hotel bookings platform acquired Native Places, an aparthotel brand with over 800 units, to bolster its portfolio of flexible, long-stay accommodations, and expand its footprint in the aparthotel sector.

Deal financing

An improving economy and the promise of more interest rate cuts means lending is increasing quarter-by-quarter across the European Leverage Loan Markets and is up significantly on last year.

Large banks have been slow to return to the sector due to concerns about consumer spending. However, challenger banks and credit funds have stepped in to leverage Private equity deals. Challenger banks active in this space include ThinCats and Shawbrook.

A new debt model for travel deals

2024 has seen a change in debt structure for some travel deals. This allows banks to take security over the operating travel company providing that the company protects client monies by putting them into an escrow account. A pioneer for this was Shawbrook’s funding provided to Risk Capital for the acquisition of Simpson Travel.

Prior to this, banks had to rely on security and guarantees from travel companies to provide financing. This was because the Civil Aviation Authority (CAA) didn’t want travel-operating companies to take on debt that could risk client monies.

This more conventional structure should mean that banks are more willing and able to lend to travel businesses moving forwards, providing that they have the right structure in place.

The onward journey

The deals completed in Q3 demonstrate faith in the travel sector from buyers, backers, and challenger banks. We only expect this to grow as the consumer outlook brightens.

For more insight and guidance, get in touch with Nicola Sartori.