Travel and tourism saw slow dealmaking during the first three quarters of last year as the sector continued to be impacted by the ongoing effects of COVID-19, as well as more recent challenges such as the cost-of-living crisis and concerns over the global economy.
Despite a post-pandemic boom, driven in the UK by factors such as the rise in domestic holidaying, changing work patterns since COVID-19 have had a significant impact on business travel, with remote work habits and video conferencing remaining popular in recent years.
The sector has also been hit by issues including global geo-political tensions and the ongoing Russia-Ukraine war, as well as numerous economic factors such as high inflation, interest rate hikes and persistent recession fears.
According to a new report from Sterling Technology and Hotel Management Network (analysing GlobalData figures), these headwinds contributed to a 33 per cent drop in dealmaking during the first three quarters of 2023, compared to the same period in 2022. Overall, the sector saw 558 announced deals in the first three quarters last year, comprising M&A, private equity investment and venture financing deals.
The decline in dealmaking was global, with North America seeing the greatest decline (43.9 per cent) compared to Q1-Q3 2022, followed by Europe with a drop of 39.7 per cent. Despite remaining the strongest sub-sector within the industry, hotels (“lodging”) saw a 57 per cent drop in deal volume and a 71 per cent decline in deal value.
Dealmaking within lodging was hit by both changing business travel habits and declining leisure spending, as consumers travelled less for holidays amid the cost-of-living crisis.
Nicholas Wyatt, GlobalData’s head of research and analysis for travel and tourism, commented: “The hotel industry’s recovery is set against a backdrop of high inflation and rising interest rates, both of which have the ability to limit discretionary spending. A lot of leisure travel fits that description and many companies have embraced technology as a means of limiting business travel expenditure as cost pressures and ESG concerns bite.”
“Consequently, hotel operators have taken a more cautious approach to M&A activity while they wait to see how the ongoing recovery progresses and assess to what extent business travel, traditionally a key driver of the industry’s performance, has fundamentally changed.”
Despite this drop in activity, there is still believed to be strong global appetite for investment in hotels, fuelling hopes that dealmaking in the market will recover once a more stable investment environment returns to the travel and tourism industry.
Following high levels of consolidation in the travel and tourism sector over recent years, another area that is forecast to potentially drive a recovery in M&A activity is investment into niche areas. According to the report, acquisitions in the current environment tend to be on the smaller side and motivated by aims to fill a specific niche.
According to GlobalData, the most important themes currently driving M&A in the travel and tourism sector are premiumisation and indulgence, wellness and the experience economy.
Find out more about M&A activity in the UK's hotels market
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