Sector Report

Hotel Industry

Paul Whitney

Corporate Finance Director

Overview of the Market

The UK Hotels industry is estimated to be worth approximately £16.6bn in 2020. Industry revenue has shrank at a compound annual rate of (3.0%) over the five years through 2020-21. The Hotels industry performed well at the start of the past five-year period. The weak pound had made the United Kingdom an affordable destination for international tourists, while weak consumer confidence led to a rise in domestic tourism over the period. Families have increasingly forgone overseas holidays, instead favouring staycations, benefiting domestic hotel occupancy rates. However, the COVID-19 (coronavirus) pandemic is expected to significantly disrupt the industry.

Industry revenue is forecast to grow at a compound annual rate of 3.5% over the five years through 2025-26 to reach £19.7 billion, supported by a likely recovery from the economic effects of the coronavirus and rising tourism. However, restrictions to the freedom of movement between people in the United Kingdom and the European Union could restrict inbound tourism from EU tourists, although industry operators may capture greater demand from domestic tourists as a result. Websites such as Airbnb are anticipated to pose an increasing threat to industry operators over the next five years as the sharing economy gains further traction.

If future trade arrangements between the United Kingdom and the European Union are deemed unfavourable, confidence in the economy is likely to plummet, damaging the industry. The coronavirus outbreak is likely to delay negotiations or make talks between the United Kingdom and the European Union harder as strict measures to limit the spread of the virus are in place. In addition, potential restrictions on the freedom of movement with the European Union in the future could reduce inbound tourism. However, expected growth in disposable incomes around the world over the next five years and the anticipated weak value of the pound are expected to continue to draw tourists from outside of Europe to the United Kingdom.

Hotel Companies

A profitability analysis on the sector from a pool of 1,500 leading UK-based Hotel companies revealed the following points:

  • 71 companies have grown more than 10% in the last year
  • 517 companies are selling les than last year
  • 680 companies have seen revenues increase
  • 90 companies have lost more than a quarter of their value in their latest year
  • Average values have increased by approximately 6% when compared with last year

Based on analysis, companies were rated on their ‘takeover attractiveness’. 453 companies in the industry were highlighted to be highly attractive takeover prospects. A total of 942 companies were given a ‘Worth considering’ rating. London was the most attractive region for takeover prospects.

M&A Activity in the Sector

Market IQ data indicates a total of 531 significant deals, where data exists, in the industry from January 2011 to September 2020, with UK targets. Deals are only reported over a certain value threshold (c.£500k), therefore, it is likely that not all deals have been captured.

Upon breaking down the deal type, M&A activity within the sector is mainly categorised by acquisitions, with 494 since January 2011. There were also 19 MBIs and 15 MBOs. A geographical breakdown of the deals shows that the South West dominates M&A activity, benefitting from 75 deals in the time frame. The North West has 69 deals completed. The rest of the deals are spread throughout other regions whilst declining to Northern Ireland and the North East, both with 17 deals.

Deal flow has been significant in each year with a gradual upwards trend through 2012-2017. This is likely characteristic of aggressive acquisition strategies from the larger players, as they attempt to fight off competition from the likes of AirBnB. With 21 deals through September 2020, forecasting the same rate to the end of the year gives 31 deals. This would be a significant dip on the previous year and 2018. If the trend continues, this data would show a lack of confidence on the part of acquisitive businesses. This is likely the effect of COVID-19 weighing in on acquisitions as major players shelve plans to acquire.

Industry Benchmarking Information - September 2018

Hallidays’ client base consists of small to lower mid-market enterprises. Our benchmarking analysis reflects businesses with turnover below £20m, in line with the majority of our clients in this sector.

Hotel Benchmarking Data Mean Median Lower Quartile Upper Quartile
Turnover Growth/Decline (%) 8.28 2.72 (2.48) 8.74
EBIT Margin (%) 7.56 7.07 (1.15) 18.83
EBIT Growth/Decline (%) 0.83 2.09 (55.38) 64.93
EBITDA Margin (%) 13.18 13.34 4.18 25.97
EBITDA Growth/Decline (%) 6.12 1.26 (35.43) 49.71
Total Net Assets Growth/Decline (%) 6.97 2.77 (7.88) 16.93
Current Ratio 1.83 0.66 0.20 1.54
Acid Test 1.80 0.63 0.17 1.46
Hotels Benchmarking

Using full company accounts filed in the last two years under the SIC-Code "551 - Hotels and similar accommodation“. Excluding companies with nil turnover in either period, we have summarised key benchmarking information for businesses under £20m turnover in the table above. September 2020.

M&A Activity Source

Experian Market IQ (September 2020)
Search Criteria: SIC-Code “551 - Hotels and similar accommodation”

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