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investment in travel M&A slows but interest in travel remains high


There was a sharp slowdown in the rate of mergers and acquisitions (M&A) in UK travel and tourism in 2019, in marked contrast to the previous year when “deals flowed thick and fast”, according to the 2018 edition of this report. No one took this as a sign of investors losing interest in travel and tourism or in M&A. Globally, M&A activity continued to surge, with deals in travel and leisure worth $7.39 billion in July alone. However, UK Office for National Statistics data showed a contraction in the value of deals involving UK companies across all sectors, with a peak in transactions abroad by UK companies in 2017 (total value £77 billion) falling to £24 billion in 2018 and £7.5 billion in the first half of 2019. Transactions in the UK by overseas companies peaked in 2016 at £190 billion, falling to £79 billion in 2018 and £26 billion in the first half of 2019. The reason was not hard to identify.


Deloitte’s regular assessment of UK chief financial officers’ sentiment, its Q3 CFO Survey, noted “slowing growth and persistent uncertainty” and “an intense focus on cost control”, with the proportion rating cost reduction a strong priority “higher even than in late 2009”. Bank of England research suggested “current uncertainties have become


‘Persistent


uncertainty’ dulls investor activity but post-Brexit upturn predicted


entrenched” and Deloitte noted: “Investment has slowed dramatically since the EU referendum.” However, the evidence from Deloitte’s Q3 Consumer Tracker was that consumers “appear more confident about their personal finances than the VWDWH RI WKH HFRQRP\b b b WKH OHLVXUH VHFWRU FRQWLQXHG WR SHUIRUP ZHOOb b b VSHQGLQJ on holidays was slightly lower than in Q3 2018, [but] spending on big-ticket experiences rose compared to a year ago”.


ECONOMIC UNCERTAINTY Noting how few M&A deals the sector had seen in 2019, Deloitte corporate finance partner Nigel Bland said: “It’s been hard for anyone to be comfortable buying or selling amid so much uncertainty. “The uncertainty throughout the


year affected consumers and businesses. Investors have been reluctant to commit to transactions in this environment.” He identified three ‘inhibitors’, saying:


THE CORPORATE view of


Brexit has not improved: belief it will worsen the business


environment reached a new high in 2019 (Figure 38). Almost half of major businesses reported


difficulty recruiting (Figure 39). Yet consumer confidence


remained broadly on a par with three years ago (Figure 40)


FIGURE 38: BREXIT IMPACT: UK BUSINESS VIEW % UK CFOs believe environment better/worse post-Brexit


% 100


20 40 60 80


0


Worse Better


% point worse v better


68% 65% 66% +55 +54 +52


72% 60% +41 13% 11% 14%


Q2 Q3 Q4 2016


19% 8% 14% 9%


Q1 Q2 Q3 Q4 2017


15% 9% 6% 10% 8% 7% 8%


Q1 Q2 Q3 Q4 2018


26 Travel Weekly Insight Report 2019-20


Q1 Q2 Q3 2019


Source: Deloitte CFO Survey +64 73%+64 60% +46


68% +53


75% +73 +73 +74


+66 79% 78% 81% 83% +68


+68 76%


“One is Brexit, the second is consumer spending volatility and the third would be the travel business failures we have seen.” Bland said: “Brexit is going to remain


uncertain, so it’s hard to see a busy first half of the year for M&A in 2020.” But he added: “If Brexit gets an answer, it’s entirely possible we will get a consumer spending bounce in January. Then we could see some M&A deals.” His colleague, financial advisory


40 50 60 70 80


partner Gurm Dhillon, noted: “Linked to that will be the value of the pound.” Bland agreed: “Sterling reacted in


expectation of a [Brexit] deal. There may be some more bounce to come, but there is still considerable uncertainty.” He suggested the travel sector failures


would “cause anyone on an investment board to pause. Even when the problems were not common, it’s going to make a difference to investors.” That said, he added: “Stock market


investors lost money, but private equity investors have had a high rate of return from the travel industry. There is an element of wanting to evaluate the


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