Sector Report

Tour Operator Industry

Paul Whitney

Corporate Finance Director

Overview of the Market

In the UK, the Tour Operator industry is estimated to be worth approximately £14.9bn, benefitting from a strong growth rate of 4.4% from 2014 to 2019. This growth is predicted to continue at 4.5% until 2024.

Following the financial crisis, households decreased their holiday expenditure as disposable incomes dropped. The sector has started to recover, however the EU Referendum result has since had an adverse effect on revenue and this has diminished growth opportunities. This is partly due to the depreciation of the pound which has encouraged domestic tourism and constrained demand for overseas trips, from which operators generate most of their revenue.

Over the next five years, tour operators will be faced with the challenge of adjusting services and capacity to suit changing preferences. Despite the negative effects of the UK’s decision to leave the European Union, the industry is expected to grow at a compound annual rate of 4.5% over the five years through 2023-24 to reach £18.5 billion. Economic expansion is forecast to inflate the market for overseas travel, while domestic holidays and short-breaks will continue to be popular options for British tourists. Participants are expected to strive to attain competitive advantages by integrating more personalised services into their operations, such as mobile booking platforms and interactive retail experiences.

Tour Operator Companies

A profitability analysis on the sector from a pool of 1,083 leading UK-based Tour Operator companies revealed the following points:

  • The most profitable 414 companies benefitted from an average profit margin of 5.1%
  • The least profitable 669 companies made an average profit margin of 0.0%; the industry average is 1.7%
  • 383 of the companies increased in value over the year with 205 companies increasing by more than 25%
  • 373 companies decreased in value, 205 fell by more than 25%
  • 105 companies have made a loss for two consecutive years

Based on analysis, companies were rated on their ‘takeover attractiveness’. A total of 471 companies were given a ‘Strong’ rating whereas 200 companies were given the lowest rating, ‘Danger’. 214 companies in the industry were highlighted to be highly attractive takeover prospects. London was the most attractive region for takeover prospects.

M&A Activity in the Sector

Market IQ data indicates a total of 76 significant deals in the industry from January 2011 to October 2018, 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 56 since January 2011. There were also 11 MBOs and , 6 secondary buy-outs, two mergers and a single management buy-in. A geographical breakdown of the deals shows that London dominated M&A activity, benefitting from 18 deals each in the time frame. The North West and the South East were close behind, both with 15 deals being completed. The rest of the deals are spread throughout other regions whilst slowly declining to Scotland, with only one deal.

Deal flow has been low in each year with a gradual upwards trend through 2012-2015 and a substantial dip from 2016 to 2017. This dip is characteristic of the uncertainty effect that the UK’s exit from the EU. Without the clarity that a deal will bring, UK businesses are highly likely to be risk adverse. This is justified further by the YTD 2018 figures, with five deals through October 2018, forecasting the same rate to the end of the year gives only six deals.

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.

Tour Operator Benchmarking Data Mean Median Lower Quartile Upper Quartile
Turnover Growth/Decline (%) 8.65 4.17 (3.59) 13.51
EBIT Margin (%) 3.16 1.11 (0.17) 4.39
EBIT Growth/Decline (%) (14.13) (3.65) (71.39) 59.39
EBITDA Margin (%) 3.91 1.81 0.09 5.30
EBITDA Growth/Decline (%) (8.44) (4.05) (62.86) 57.15
Total Net Assets Growth/Decline (%) 3.64 0.51 (13.48) 12.03
Current Ratio 1.68 1.29 1.09 1.78
Acid Test 1.67 1.29 1.08 1.78
Tour Operator Benchmarking

Using full company accounts filed in the last two years under the SIC-Code “7912 – Tour operator activities”. Excluding companies with nil turnover in either period, we have summarised key benchmarking information for businesses under £20m turnover in the table above. September 2018.

M&A Activity Source

Experian Market IQ (October 2018)
Search Criteria: SIC-Code “7912 – Tour operator activities”.

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