Pandemic bolstered markets

The trend of ‘staycationing’ or domestic tourism has always been prevalent in countries such as the UK, France and Germany, however with consumers being deterred from taking overseas breaks, this has further accelerated the trend. This, in turn, has led to an increase in interest in domestic tourism assets, areas such as holiday cottages, parks and camping [3].

Domestic travel represents one of the few sectors which offers favourable M&A activity, underpinned by economic resilience and, barring any national lockdowns, a business that should continue to generate cash flow throughout the pandemic. The sector has continued to see deal activity even during the height of lockdown, as demonstrated by KKR’s acquisition of Roompot (a leading holiday park operator in the Benelux), for €1.1bn in June of this year [4]. 

As holiday rental bookings increased fourfold across popular UK destinations [5], and more macro trends outside of Covid-19 including the eco-conscious traveller, [6] we expect to see further M&A activity in this space. There is considerably more competition for resilient investments in these times, and we believe that staycation is one of them.

Delayed distress

Governments have sought to support the economy through a combination of tax, loans and employee funding schemes. Industries like tourism have largely avoided financial distress due to customers willing to accept vouchers or deferring their holiday, significant cost and working capital management and a largely supportive loan market [7].  In countries where tourism is a fundamental part of their economy, e.g. Spain, Italy, this has meant government intervention has been crucial, though unlikely to be enough if occupancy levels do not increase. At the time of writing, Europe is entering its second wave of the pandemic and, hospitality, once again, is likely to bear the brunt of further restrictions on trading, capacity and temporary closures. The government support for the industry is likely to continue for the foreseeable future.

However, government funding is not limitless. Policy has mainly favoured the tenant with measures such as employee support, tax deferrals and moratoriums on rent. Despite this many are likely to fail. The moratorium on rent has shared this financial burden upstream with landlords, who with no or reduced rent coming through, and a more leveraged balance sheet will no doubt look to their lenders for financial patience too. Absent a marked recovery, some banks may well need to look to governments for support

Impact on M&A

With the uncertainty of the recovery and what post pandemic norms will look like, sectors with high fixed costs will likely see greater pressure to explore M&A to generate scale and cost benefits. The hotel sector is a case in point with recent speculation surrounding potential mergers of major global operators already rife. Those that are well positioned and capitalised will see the attraction of acquiring platforms (particularly small to midsize operators), at opportunistic valuations compared to pre-pandemic levels [8].

Economic uncertainty prevails which, as widely reported, has adversely impacted capital investment. However, the paradox is that private equity markets and corporate balance sheets are flush with cash. Corporates and portfolio companies have mostly outperformed on liquidity and cost control, but the recovery remains stubbornly opaque if not prolonged.

To date, M&A activity in the consumer sector has steered towards the more resilient growth areas of food or staycation as mentioned above. Resilient assets with stable cash flows and certain growth will likely command premium valuations even in today’s market. There remains a high level of uncertainty across hospitality and leisure meaning that M&A investment hurdles are therefore higher.

Opportunistic funds are gearing themselves up to deploy capital and prepared to take risk. Many are waiting on the side lines for further transparency and believe that valuations have some way to fall. We expect that there will come a point in the coming months when conviction will return and transaction activity is likely to return in force, most likely underpinned by a successful vaccine or mass testing programme.


Whilst it is clear that the leisure and tourism sector remains heavily affected by the pandemic, there are areas that are maintaining and creating M&A activity. The consumer trends towards domestic travel and the continued uncertainty surrounding international travel has and will continue to drive investor appetite.

It is however, important to reflect upon the short and long term changes that the sector may experience, and therefore we think the next few months will be crucial in determining areas of potential and in assessing risk. A huge factor for this industry is timing and despite the current disruption, it seems it is by no means an industry lost. Conviction will return.


[1] Reimagining the 9 trillion tourism economy - what will it take? McKinsey, August 2020

[2] Tourism, leisure industry deals in August 2020 total $1.81bn globally, Hotel Management Network, September 2020

[3] Holiday let investment rises, Short term rentalz, August 2020

[4] KKR to acquire Roompot Group for $11bn, Financier Worldwide, June 2020  

[5] Insight: Why UK holiday rentals are still a very good bet, Property Investor Today, July 2020

[6] Google says private accommodation is recovering faster than hotels on a global scale, Hospitality Net, October 2020

[7] Leisure sector M&A awaits delayed reaction, White & Case, June 2020

[8] and [9] Evaluating Covid-19's M&A opportunities, Hotel Management, April 2020

[10] Japan's Sarasa Hotels acquires Florida Quality Inn for $10.6m, Top Hotel, April 2020