Please note: Our website no longer fully supports IE11, as such you may encounter issues using our website, please try an alternative browser such as Google Chrome, Mozilla Firefox, Microsoft Edge (Windows) or Safari (Mac).
Travel Industry Outlook: Key Trends and Investment Insights for Q3 2024
The travel industry is seeing strong investor interest, particularly from private equity (PE), despite lingering challenges from the pandemic. While record passenger numbers at Heathrow in September indicate recovery, investors still face the complexity of evaluating nearly four years of evolving trading data. With many consumers still booking travel closer to departure dates, travel companies are adjusting to unpredictable patterns, leading to longer transaction timelines.
Private Equity interest
In Q3 2024, the UK travel sector saw a 36.4% increase in deal volume compared to the same period in 2023, with private equity accounting for 40% of these deals. This indicates sustained interest from PE firms in travel assets. Notable deals include Piper’s purchase of Martin Randall Travel and Mayfair’s €35 million investment in BizAway. These moves highlight the diversification of private equity portfolios into niche areas of the travel industry, hinting to long-term growth potential.
Impact of Tax Changes on M&A activity
A significant development impacting travel M&A is the UK government's recent tax changes, particularly increases in capital gains tax (CGT). Effective immediately, CGT has risen from 20% to 24%, while tax on carried interest will increase from 28% to 32% from April 2025. These changes were anticipated and, while any tax rise may slow deal-making, the new rates are still relatively attractive with Business Asset Disposal Relief (BADR) retained and a gradual increase in its rate to 18%. Therefore, despite these changes, the tax environment remains favourable for investors taking entrepreneurial risk.
However, the bigger impact on the M&A market may come from increased Employers’ National Insurance Contributions (NICs) and the national minimum wage, which could affect earnings and valuations. Another key development is the planned reform of carried interest rules in 2026, giving fund managers ample time to adjust their structures to comply with new regulations.
Hotels: A Continued Focus for M&A
Hotels represent a significant portion of M&A activity in the travel sector, with 40% of Q3 deals involving hotel properties. The acquisition of hotel portfolios, such as BC Partners’ purchase of a group of German hotels and B&B Hotels’ UK expansion, shows continued investor confidence in the hotel market. As interest rates are lower and inflation slows, demand for hotels from both consumers and investors is expected to grow. However, challenges persist, particularly for independent, regional hotels, which face pressures such as rising costs and staffing shortages.
Technology and In-Person Services
While technology remains a significant deal-driver in travel, with companies like eShores and eSky leveraging digital platforms, traditional in-person services are also experiencing a resurgence. According to the Association of British Travel Agents (ABTA), 38% of people booked their holiday through a travel professional in 2024, a slight increase from the previous year. This trend highlights the continuing importance of personal support for travelers, especially when issues arise. For example, the UK’s largest independent travel agent, Hays, saw a 43% jump in pre-tax profits in the year to 30th April 2024, demonstrating the growing demand for in-person services.
International Investment and Debt Structures
In Q3 2024, international investment in the UK travel sector increased, with foreign buyers focusing on aparthotel acquisitions. Notable deals include the purchase of Residence Inn by Marriott properties in London by Swedish firm Pandox. Meanwhile, changes in debt structures are allowing for easier lending to travel companies, as banks are now able to take security over operating travel companies, provided they protect client funds in escrow accounts. This shift is expected to encourage more banks and lenders to finance travel acquisitions in the future.
Conclusion
The travel sector is poised for continued growth, supported by strong private equity interest, a favorable investment environment, and increasing deal activity. While post-pandemic consumer behavior and tax changes present challenges, the outlook for the industry remains optimistic. The balance between digital platforms and in-person services will shape the future of travel, with investors and buyers looking to capitalize on both trends. As the economy improves and consumer demand strengthens, private equity will likely remain a major player in the travel sector, driving further M&A activity.
More information on notable deals and their significance can be found in our latest Autumn Travel review: Travel M&A review: Autumn 2024 | Grant Thornton
You can get in touch with Nicola Sartori, Head of Travel & Consumer M&A at Grant Thornton