The City view Economic outlook set to brighten
M
y guess is that 2015 should prove to be another bumper year for the travel sector, although if you talk
to mainstream economists and high-level institutional investors, that cautious optimism is certainly not shared. Investors who put money to work in bonds have been switching money out of shares and into US Treasury bonds recently, frightened that the world is on the edge of a deflationary abyss, believing that austerity in the eurozone is threatening the world economy.
Bears’ view My own favourite uber-bear is a certain Albert Edwards, a strategist who pens some wonderful research notes for big French bank Societe Generale. Edwards recently told his clients: “Institutional investors are
The Deloitte view
After a solid start to M&A activity in the travel sector in the first half of 2014, there was a significant rise in activity over the summer and it is likely this year will turn out to be the busiest for transactions since 2007. The main difference between this
year and 2007 is that seven years ago the majority of assets were bought by one of the large established operators – Thomas Cook, Tui/First Choice, Kuoni and Holidaybreak etc. In 2014 the key buyer group comprises institutional private-equity investors. The reasons for this are twofold.
First, a number of factors have aligned to allow many of the stronger businesses to post consistent growth in profit figures of 15%-20%. In addition to strengthening consumer demand,
there is a significant and ongoing channel shift online, an evolving structure for the distribution model, effective internationalisation and regulatory pressure on smaller players. These factors make the sector very attractive for growth-capital providers. Second, the established operators
are going through a period of refocusing. This has reduced their appetite for acquisitions and created an opportunity for specialist businesses to increase market share. There is also interest from trade
acquirers, albeit a largely different set to those in 2007. Dubai-based dnata, part of the Emirates Group, is increasingly active in building its travel business having acquired Stella Travel Services this autumn and Gold Medal in
February. Expedia and Priceline are also increasingly active and Saga showed an intention to broaden its products with the acquisition of Destinology in August.
A new set of competitors for acquisitions has also emerged over the past two years with US-based institutional equity now looking at investing in Europe once more. For example, Great Hill Partners of Massachusetts acquired a majority stake in Momondo in October 2014. We expect the demand from active
trade and institutional investors to be strong over coming months. This should mean pricing remains strong despite the considerable number of assets on the market, reflecting the significant opportunities for growth in the sector.
Disregard the doomsayers and expect demand to strengthen next year, says Travel Weekly City Insider columnist David Stevenson
FTSE 100 CHANGE year on year
+2%
getting increasingly nervous that we have reached the end of the road and a major market top may be forming in equities. Notwithstanding particularly concerning economic data out of the formerly reliably robust Chinese and German economies, many market commentators are pointing out that US inflation expectations have now slid to levels that previously triggered the US Federal Reserve to enact QE [quantitative easing] yet there seems to be absolutely no prospect of that occurring
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