Last week's Travel Weekly Business Breakfast looked at the hot topic of merges and acquisitions in travel. The event saw around 100 senior executive gather at the London HQ of Google and was sponsored by financial advisor Duff & Phelps and industry accountancy firm White Hart Associates. Lee Hayhurst reports.
PE investors fill gap left by less-acquisitive operators
A dearth of trade buyers in travel has been filled by private equity investors as the banking system and regulators have become more “accommodating”.
Jason Katz, founding partner at Kings Park Capital, said the withdrawal of the big vertically integrated tour operators from the M&A scene had left a gap.
He said in the past, most opportunities in the specialist holidays area were “gobbled up” by First Choice, but today such trade buyers, including Thomas Cook “are sorting themselves out”.
“There has been a dearth of buyers but that gap has been filled by private equity,” Katz said.
“A few years ago you could not get any leverage into these [target] companies. But the banks have become a bit more comfortable and the regulators have become a bit more accommodating. It’s changed for the people who are looking to buy travel businesses.”
Katz said Kings Park looked to invest in high-margin firms with good growth prospects, adding: “Investing in lower-margin businesses is very scary.”
Tom Salmon, director of 3i, said investment opportunities are assessed against emerging trends like take-up of digital technology, demographics and the move from luxury goods to experiences.
“There are businesses clearly in the travel sector that play to those trends, there are just not a huge number in our price range,” Salmon said.
‘You have to get on with owners – a bit like a marriage’
Owners who stick around and adapt to corporate culture are often associated with the most successful business acquisitions, Tui Group’s head of M&A said.
Christine Franks said the firm had had mixed experiences integrating firms and owners who were once “masters of all they survey” into a corporate structure.
“In some of our most successful divisions the owner-managers are still there – that’s telling,” she said.
Katz and Salmon from Kings Fund Partners and 3i agreed they look to back management teams they get on with and can leave to run the business.
Katz said: “I always say to the management team, ‘we are not management’. It’s all about giving them the tools and the capital. It’s important to have a beer with them after a board meeting. You have to get on – a bit like a marriage.”
Riviera Travel founder Michael Wright said the due diligence process with buyer Phoenix was “reassuring” and had validated much of what he was doing.
3i reports few mid-sized travel firms put on sale
Mid-sized acquisition targets in travel are few and far between, the private equity investors agreed.
Tom Salmon, of 3i, which has previously owned Travelbag and Page & Moy, said it looked for firms with turnovers in the region of £120 million and with international growth ambitions.
But he said: “Travel companies tend to be quite polarised between a lot of smaller businesses and the very large consolidators. Businesses in our [target] range do not come along very often.”
Jason Katz, of Kings Fund Capital, added that with so much money chasing deals, valuations in travel were soaring.
“Traditionally, you’d be looking at a multiple of five to six times Ebitda, but some sales go well into double digits. Buyers are paying for an enormous amount of growth up front, which is great if everything goes the right way.”
Asked about last year’s sale of lastminute.com to Bravofly Rumbo for £76 million – a fraction of the £577 million it was sold to Sabre Holdings for in 2005 – Katz said: “I don’t think lastminute made much money so the multiple of both transactions would have been either not meaningful or not very high.”
Riviera happy to be in step with Choo-backer Phoenix
Acclaimed footwear fashion brand Jimmy Choo played an unlikely role in Riviera Travel’s sale to private equity investor Phoenix Equity Partners last year, its founder revealed.
Michael Wright, who retained a 20% stake in the escorted tours and river cruise specialist, explained why he chose Phoenix from a group of 12 private equity firms that expressed an interest.
“It was what they had done with Jimmy Choo,” he said. “They had taken a very British, relatively well-known brand and made it international. They had extended the product range but they were still aligned to the brand and they had really grown it and sold it and looked after the staff.”
Wright described his experience of the private equity sector as “very positive”.
“When you are on the outside of a business or sector, you form an opinion based on what you see,” he said. “But when you start lifting the lid, everything is very much more complex and involved.
“I found some very, very positive people and really highly skilled people as well.”
After seeking advice from financial services giant PwC, Wright said he rejected seven of the 12 firms interested in Riviera and received offers from four.
He revealed the Phoenix valuation was “slightly lower” than the highest but he was attracted by the investment company’s record.
Wright had planned to exit Riviera completely but at the end of the process decided to ask if he could retain a stake for a year.
He added he had not yet decided what he will do after December, the anniversary of the deal, saying: “I do not know how I will feel, because you are selling your baby.”
Wright recounts scare that spurred him to sell stake
A health scare prompted Riviera Travel founder Michael Wright’s decision to sell his business.
Having had successful treatment for a pre-melanoma skin condition aged 58, and with a school friend having being diagnosed with cancer, Wright said he started to reappraise his life.
“I just thought if I was trying to run [the business] from my hospital bed it would not be good for anyone,” said Wright who, prior to selling Riviera, had “expected to work until I dropped”.
Wright added there was also the fear that the firm might hit a blip and any potential buyers would be suspicious that he was selling out at the top.
He said the valuation he placed on the firm was a lot less than what it sold for. “I got well into nine figures. I probably won’t be able to sign on when I retire.”
Since selling an 80% stake to Phoenix last December, Wright said the biggest challenge had been to recruit people to do what he had been doing in the business.
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