Kuoni’s new owners should focus on improved integration and rationalisation, says Christopher Photi, head of travel and leisure at White Hart Associates
Yesterday it was announced that the European tour operating businesses of Kuoni were sold to DER Touristik, the travel division of REWE Group.
DER is one of the largest travel businesses in Germany.
The entire Kuoni UK Group is included in the sale, which includes the main Kuoni tour operating brand, its 34 Kuoni-branded travel shops and John Lewis concessions as well as specialist travel businesses Carrier, CV Villas, Kirker and Voyage Jules Verne.
It was originally thought that Kuoni UK group would be sold as an individual parcel and an Information Memorandum to that affect was circulated by corporate finance advisors Morgan Stanley earlier this year.
This transaction is a departure from the majority of recent high profile M&A activity in travel in that DER are a trade buyer.
Most recent substantial leisure transactions have been made and funded by private equity firms. In recent years the only significant trade buyer of UK travel businesses has been the UAE-based Dnata.
In relation to Kuoni this is not entirely unexpected.
The Kuoni UK Group was never going to be a straightforward private equity transaction as it was being offered for sale with substantial net debt and was not a group with current nor projected ‘hockey stick’ profit growth albeit not without potential.
As such the potential private equity market narrowed considerably to those private equity firms with turnaround expertise and experience.
The other key stumbling block would have been the substantial funding requirements to satisfy the UK regulatory framework.
An established trade purchaser of substance with a financially strong balance sheet and reserves would be a far more attractive proposition to the UK regulators than the established order of private equity usually funded part equity and part debt.
There is little doubt that the transaction will breathe new life into Kuoni UK. The press releases yesterday with quotes from Derek Jones, the managing director, were all concentrating on the business “thriving under new ownership”.
This obviously begs the question as to why it was not thriving under the existing ownership.
I believe the Kuoni UK play has to all be about improved integration and rationalisation. The individual companies contained within the Kuoni UK stable are some of the best brands and businesses in recent travel history.
However, it is not easy to merge and rationalise a variety of different companies into a new whole. Thomas Cook is living testimony to this fact.
A key play for any trade buyer is obtaining financial and structural savings through synergies within the whole when integrating a variety of different businesses, each with their own management structures and IT platforms.
It is a very valuable skill indeed to be able to actually obtain the projected synergies and savings that the accountancy spreadsheet jockey fraternity so readily forecast on paper.
The realities are far different. I believe this is where Kuoni UK has had historic difficulties.
Private Equity turnaround specialists would be brutal in this respect – it remains to be seen as to how DER will approach the situation.
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