Merger and acquisition activity in the travel industry is expected to return in the next six to 12 months, but private equity investors may take an initial “pause” on the sector.

Speaking on a Travel Weekly Roadmap to Recovery webcast, Duff & Phelps managing director of M&A Henry Wells said he expected much of the activity to be “distressed or opportunistic”, but said he was optimistic of an eventual return to pre-Covid levels over the course of the coming two to three years.

He said: “You’ve got trade buyers with strong balance sheets that want to access or execute some sort of strategy. They wanted to do that pre-Cvid and they still want to do that so we’re working with them as to how to how to best execute.

“It is not about trying to get it for the cheapest, it’s about trying to get it for the best value. And that value is about engaging with and incentivising the ownership or the management team at the top, as they’ve got to work with that business going forward.”

Wells said private equity investors may step back from travel for a while, but insisted they would be “back with a vengeance”.

“In 2019, there was £110 billion of what’s called ‘dry powder’ [across all sectors], which is money that was raised in that year, but not invested. That means there’s £110 billion that needs to be invested,” he said.

“They need to find a home [for this money] but I think with travel, it will take a bit of a pause as investors assess what the real impact is. People in private equity are assessing very carefully which of the sectors and sub-sectors will do well and which will struggle; which will need to change and which they will back.

“But I do predict that they will definitely be back with a vengeance. It might not be now, but it will be certainly over the next year or so.”

Wells added: “Some of those funds have been raised by what’s called opportunistic funds, and they are there to look at businesses who are in distress, whatever sector, and travel is certainly one which is attractive to them.

“If you make the right investment now, and a business comes back very quickly; high growth, high cash generation, low asset base…it could be very attractive.”

Wells pointed to a number of investors who have set up vehicles to help struggling travel businesses as evidence of demand.

“A variety of people have set up and are saying ‘we’re here to help and we’ll get paid either in equity or in cash, or we can help you find money because we’ve been around the block and we know what the issues and the pinch points are’,” he said.

“If you were a private individual, and you’d run your travel business for 10 years, were nicely profitable, maybe took a nice dividend every year. And you sit there now and you say ‘do I want to bet the house or do I want to find someone who’s going to help me?’

“Actually, that’s a pretty lonely place and people who are connected with finance or with others are good people to talk to.”