Crowdfunding impact played down in Bearish M&A travel market

Crowdfunding impact played down in Bearish M&A travel market

A leading financial advisor to the travel sector has tipped the emerging crowd-funding sector as being here to stay, but cast doubt on the impact it will have.

Christopher Jones, managing director of Altium Capital, told last week’s McIntyre Hudson and Barclays travel seminar that there were some crazy valuations in the crowd-funding arena.

He singled out a crowdfunding bid by the owners of Hell’s lager, Camden Town Brewery, which values it as £65 million as an example.

“It sees the [crowdfunding] industry is totally detached from professional investors, but maybe that’s the point.

“A lot of investors are probably not that sophisticated. They will have money in the bank earning no interest and they like the idea of being part of that and don’t have a good concept of what a business is really worth.

“I’m sure there is money to be made though it feels the balance of power sits with the company raising the money rather than the people writing the cheques.

“It’s a new age concept. I wouldn’t be surprised if it’s here to stay. I have heard people suggest it’s the next misselling scandal.”

Jones said external investment is the only option for firms looking to grow although investing your own money is the best options.

He added bank debt was the cheapest for of equity, but banks are wary of investing in early stage companies, so private equity is the other option, although this dilutes the shareholder value.

Jones said the market was ‘bearish’ at the moment with plenty of private equity money chasing a limited number of prospects. “Valuations are very strong at the moment,” he said.

“It’s a function of supply and demand. There’s a relative paucity of good assets out there and a lot of people are chasing them. There are relatively few trade buyers, it’s mainly private equity.”

Jones said trade buyers tend to be “late cycle”, tending to become acquisitive when they see organic growth opportunities slow down.

“I see travel trade buyers coming back into the market in two or three years, and that’s very healthy.”

Current prospects for sale include Tui’s specialist division which Jones expects to come on the market, although the firm has denied that.

He said Kuoni would likely be snapped up by private equity, although he said if it can’t sell the division as a whole is might be split up and the UK arm would attract interest.

“The luxury segment is a growth segment. Pension reform in the UK is going to be a huge boom to the travel industry and we will see that over the next year.

“It’s an attractive marketplace for potential acquirers. People have always been prepared to pay more for £1 of luxury profit than £1 of mid-market profit.”

Jones said the retail sector was polarised in travel, with digital firms more attractive to investors than high street, but tour operating and online distribution were hot.

Despite the improving mergers and acquisitions scene in travel, Jones said it was not yet back to the high of 2007 when selling a mediocre business was “like falling off a log”. “Those periods are, frankly, not particularly healthy,” said Jones.

The prospect of less generous entrepreneur tax relief after the general election in May is seeing a number of proposed deals working on a “drop dead deadline” of May 7, added Jones.


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