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Rebound and Resilience: The Revival of the European Travel Sector

By Ben Martin,

The travel sector, one of the industries hit hardest by the COVID-19 pandemic, is experiencing a resurgence in 2023. Travel’s rebound gathered significant steam in 2022, and there was much for the industry to feel positive about. For example, Europe reached nearly 80 per cent of pre-pandemic levels as it welcomed 585 million arrivals. Similarly, nights spent in tourist accommodation almost reached pre-pandemic levels in the same year. But these aren’t the sole signs of resurgence—a notable increase in M&A activity also marks the travel sector’s recovery. This article explores the current state of the European travel sector and the rise in M&A activity. 

The Revival of Travel M&A Activity

The M&A landscape in the travel sector is thawing after it froze over in 2020. M&A activity is gaining momentum and is due to accelerate throughout the second half of 2023. Ben Martin, Global Head of Transaction Advisory (Growth) at Palladium, explained: “Travel is coming back. We’re at the point in time where some travel investments are reaching their natural exit window, and we’re anticipating quite a few travel-related opportunities will come back around.” 

A healthy level of deal activity occurred in the first quarter of 2023. Seven private equity deals were announced in the European tourism and leisure industry at a total value of $284 million. This resurgence of investor interest is prompting owners of travel companies to contemplate selling their businesses. But investor interest isn’t the only factor influencing business owners’ decisions to sell:

Post-pandemic recovery

After weathering the storm of the pandemic, some business owners have chosen to sell after delaying their plans due to the pandemic's negative impact. Now that valuations are rising, some see it as the perfect time to sell their travel ventures—it’s no longer a case of doing the deal at any price. The current M&A landscape offers business owners opportunities to sell their travel companies at increasingly attractive valuations. 

Digital transformation

Technology adaption varies widely among travel companies, but the industry has generally made significant strides in incorporating technology into its operations. As technology evolves and reshapes companies' operations, business leaders recognise the need to enhance digital capabilities. 

Digital transformation is one of the factors driving a surge in M&A activity, with businesses seeking to acquire tech-savvy firms to bolster their digital expertise. Online booking, mobile apps and AI-powered services are in high demand, and acquiring a tech-enabled travel business provides immediate access to advanced technologies and digital expertise, allowing companies to modernise operations, streamline processes and boost efficiency.

Similarly, technologically advanced businesses recognise the increasing consumer demand for travel and want a slice of the pie. They see opportunities to leverage their digital capabilities to enhance travel businesses and capture a larger portion of the market. 

Impending regulatory changes

Due to upcoming travel industry reforms, some travel business owners have chosen to sell. Since April 2021, the Civil Aviation Authority (CAA) has sought views from travel businesses about reforming the ATOL scheme. The proposed changes, which travel experts suspect may involve the segregation of customer funds, could significantly alter how travel businesses operate. These potential changes are causing some business owners to reconsider their future in the sector, which may lead them to sell. 

Sustainability initiatives 

The demand for sustainable travel options is another factor driving M&A activity. Firms are keen to acquire businesses that have embedded sustainability into their operations. By acquiring these businesses, companies can gain the necessary expertise and reputation to align with emerging sustainability-focused consumer demands. 

Ongoing uncertainty

The ongoing challenges posed by the current economic situation and geopolitical uncertainty may influence the decision to sell. The present economic climate, characterised by high inflation, fluctuating exchange rates and the potential for further interest rate hikes, creates an unpredictable environment. For some travel business owners, selling via M&A could be a way to mitigate risk and ensure the sustainability of their business with an infusion of capital in the face of ongoing economic and geopolitical uncertainty.

How can Palladium Assist Investors and Travel Companies?

Opportunities abound in the European travel sector. So how can Palladium help buyers and sellers make the most of M&A opportunities and mitigate risk? At Palladium, we have assisted investors and travel companies with our transaction advisory and value creation services. 

Snapshot Report and Early Stage Diligence

The Palladium Snapshot Report suits those looking for a low-latency, low-cost assessment of a sector and its competitive landscape or the rapid benchmarking of a target or owned asset versus its competitors and market.

Alternatively, Early Stage Diligence is an outside-in assessment of commercial capability, digital performance and brand strength versus the market and direct competitors to provide an early, qualified view of a target company.

Digital, Commercial and Technology Due Diligence

Digital due diligence involves defining the digital health and maturity of target assets, assessing the sustainability of business performance, identifying disruptive threats from new technologies, legislation and, consumer trends and opportunities for change through digital.

Commercial due diligence assesses an investment target’s historical performance and future commercial growth potential within its market and against its competitor set. The process involves utilising a combination of digital data sets, data room analysis, targeted surveys and expert interviews, and the expertise of Palladium’s in-house analysts. 

Technology due diligence is a detailed assessment of the strength of the technical foundations of a business, indicating areas requiring further investment and the suitability of platforms to meet business plan requirements. The process also identifies strategic opportunities for introducing new technology to drive commercial value. As a result, firms can understand how a business collects, structures and uses data to support decision-making and how it drives the evolution of products and services.

Digital Defensibility

Companies must prioritise digital defensibility to protect their market position and competitive advantage. This concept is particularly relevant today, as digital capabilities are key to a company’s competitiveness. Digital defensibility can be achieved through various means, including data, proprietary technology, brand and reputation, speed, and agility. At Palladium, we work with travel brands to establish digital defensibility by identifying digital pillars of business success and evaluating defensibility against competitive threats. 

Value Creation

At Palladium, we also provide extensive value creation services. We support post-deal activity through strategy and service design, product and technology implementation and programme and change. 

Strategy and service design involves working closely with leadership teams to set business goals and prioritise the required activities. 

Product and technology implementation involves building capabilities to design and develop the products and services required for organisations to scale quickly, collaborating with investment teams to implement agile working practices and value-adding solutions. 

Our programme and change service involves transferring skills and training the investment team on how to use new technology to improve efficiency. 

In Summary

Despite the challenges posed by the COVID-19 pandemic and the continuing economic and geopolitical instability, the European travel sector is experiencing a rebound. Recovery began as an uptick in tourist arrivals but now manifests as increased M&A interest. From digital transformation to sustainability, travel companies and industry investors are capitalising on new technologies and shifting customer preferences, positioning themselves for success and, in the case of those selling up, a favourable valuation. Investor’s active participation is a vote of confidence for the industry, signalling that it has the backing to meet future challenges head-on. 

It is a transformative period for the once-struggling travel industry—a time for business owners to reevaluate their strategies and demonstrate their worth to potential investors. As the sector continues to navigate the opportunities and challenges that lie ahead, Palladium remains committed to assisting travel businesses and investors in capitalising on M&A opportunities. 

If you’re a travel industry player considering your next move in this rebounding market, or an investor seeking to seize M&A opportunities in the sector, we at Palladium are here to assist you. Contact us today to learn more about how we can help. 

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