Having experienced one of the worst Covid-19 disruptions of any industry, the travel and tourism sector has seen a significant post-pandemic rebound. Despite this, the industry is not out of the woods yet. Changing work patterns have impacted business travel, the cost-of-living crisis has hit the leisure sector, and ongoing concerns surrounding the global economy are causing companies to exercise caution in their investment strategies.
This caution is reflected in slowing dealmaking activity in the sector. According to analysis from GlobalData, a total of 558 deals (comprising mergers and acquisitions, private equity, and venture financing deals) were announced in the travel and tourism sector globally during the first three quarters of 2023, which was a decline of 33% compared to the same period in 2022.
“Geo-political tensions, the Russia-Ukraine war, inflation, recession fears, and interest rate hikes seem to have taken a toll on dealmaking sentiment in the travel and tourism sector. As a result, we have been seeing subdued activity across key markets and regions,” says Aurojyoti Bose, lead analyst at GlobalData.
The decline in dealmaking was broad-based across geographies, although led by North America and Europe. North America witnessed the greatest decline in dealmaking, with the number of announced transactions decreasing by 43.9% during Q1-Q3 2023 compared to the same period in 2022. Europe, Asia- Pacific, the Middle East and Africa, and South and Central America experienced year-on-year declines of 39.7%, 12.7%, 16.7%, and 25%, respectively.
Hotels lead M&A, with notable setbacks
Nevertheless, hotels remain a strong player in the M&A space. Lodgings has retained its historical position as the main source of M&A in travel and tourism, despite 57% fewer deals and a 71% drop in overall deal values. Investment has slowed in response to a decline in leisure travel from reduced consumer spending, as well as the significant impact of video conferencing and remote work on business travel.
“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,” says Nicholas Wyatt, GlobalData’s head of research and analysis for travel and tourism.
“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.”
Mega deals lag behind
Mega deals – those worth over $1bn – are generally uncommon in travel and tourism, but there has been at least one per quarter in recent years. So far, 2023 has been noteworthy in its lack of mega deals, suggesting industry caution in the face of economic headwinds. Sun Communities’ $1.3bn purchase of Park Holidays UK in April last year was the last recorded hotel mega deal.
Industry players rush to premium niches
Reduced activity is also the result of an already highly consolidated industry, comprised of a few big players. As a result, acquisitions in the current landscape are generally smaller, and driven by a need to fill a certain niche.
GlobalData research shows the most important themes driving M&A activity for travel and tourism were premiumisation and indulgence, as shown by Qatar Investment acquiring Witkoff Group (Park Lane Hotel) for $623m in September 2023 and CapitaLand Ascott acquiring Three Lodging Assets for $397.8m in August 2023. Other themes driving deals include wellness and the experience economy - VICI Properties Inc. acquired a minority stake in Canyon Ranch for $150m in August 2023.
While the travel industry waits for a more stable investment environment, we believe that the appetite for investment in hotels is still there. Industry players will likely continue to view smaller, more strategic investments in premium niches as a safe bet for the foreseeable future. Ambitious, higher-value investments will likely have to wait until major uncertainty subsides, and the future trajectory of the industry is clearer.
Discover further insights To learn more, download our new report “‘Challenges and opportunities for the global hospitality sector in a post-Covid-19 world”, published in association with Sterling Technology – the premium virtual data room provider for hospitality and hotels dealmaking.
