Now, private equity (PE) firms have set their sights on the travel sector — including hotels and resorts — as the next great investment opportunity. Further, the increase in travel demand stemming from the end of pandemic-related restrictions has led to a strong recovery in PE transactions across the sector. In 2024, significant transactions, including Ares Management Corporation and EQ Group’s acquisition of Landsec’s entire hotel portfolio for approximately £400 million, exemplify this trend. According to experts, it’s good demographic trends that are making investors so interested again. They point out that a limited supply in desirable locations is stoking this enthusiasm.
Graham Miller emphasizes how private equity firms impose rigorous performance targets and milestones. While well intentioned, this focus can make the investment landscape more difficult to navigate. Andrew Keller points out that while the sector shows promise, it faces challenges such as market unpredictability and regulatory hurdles. Though these challenges are many, the desire to invest is clearly there as firms reposition and invent themselves in new ways within the travel ecosystem.
Investment Landscape in Travel
The hotel and resorts sector has, in fact, been magnet for investment from private equity firms. Photo by Jacek Dylag on Unsplash The European tourism and leisure industry witnessed the fourteen private equity transactions during Q2 2024. Collectively, these deals were substantial at $822.9 million. This activity highlights the growing importance of PE in shaping the future of travel, with many firms pursuing buy-and-build strategies.
Andrew Keller notes that “PE activity in the travel sector has seen a significant increase, accounting for around 40% of UK travel M&A in 2024.” As we know all too well, travel demand has returned with a vengeance post COVID-19. This wave, along with a healthy supply of capital—sometimes referred to as “dry powder”—is luring a rash of firms back into the hospitality sector.
Dr. René-Ojas Woltering explains that “the hotel and resorts sector in particular has seen large investment from private equity.” Tour operators and restaurants, for instance, are attracting interest from private equity (PE) investors, he adds. This new influx of risk capital allows these young businesses to harness operational expertise that is often out of reach for smaller or independent firms.
“Hotels benefit considerably from this process, as private equity provides both capital and operational expertise, resources often unavailable to smaller, independent, or family-run hotel businesses.” – Dr. René-Ojas Woltering
Challenges Facing PE Investments
Though investment in travel is booming, there are challenges that create a complicated operating environment. Keller points out that the travel sector faces “market unpredictability—driven by volatile demand, shifting booking behaviors, and macro shocks such as geopolitical events—which complicate forecasting and valuations.” Additional limitations can compound making it harder to gauge climate risks when investing.
Furthermore, steep capital costs are a risk to their returns and the deal-making process itself. Keller explains that in addition to these house-level hurdles, firms have to deal with a growing patchwork of zoning, planning and historic preservation regulations. As they continue to seek opportunities for growth, they need to start accounting for where they cut costs at the expense of service.
Graham Miller highlights another layer of complexity: “Always the challenge for investment is aligning objectives and timeframes.” This challenge is further compounded when founding owners remain engaged with their practice. They push back to relinquish control, even as they pursue investment to drive their growth and scale.
“At the same time, firms must strike a careful balance between cost-cutting and maintaining service quality; aggressive reductions can negatively impact customer experience and brand reputation.” – Unknown Source
Shifting Trends and Future Prospects
Looking forward, a few reasons make the future look bright. At least from the travel industry’s perspective. Favorable demographic trends point to affluent baby boomers entering retirement, leading to increased future demand for travel services. As Dr. René-Ojas Woltering of WRI Ross Center for Sustainable Cities cautions us, supply is very limited in desirable locations. This is mainly because of incredibly costly land acquisition and construction expenses.
James Thornton reflects on an emerging dual-pronged approach to premium and entry-level travel. He states, “We’re seeing growth in the higher-end premium space because it’s often where luxury travelers are choosing to go on more cost-effective solutions. And equally, we’re seeing our more entry-level type travel experiences grow very strongly as well because they’re very affordable ways for people to get out and see things.”
Joined by other firms, private equity firms have been moving aggressively to reshape the travel sector. They deploy innovative technologies, improve efficiencies, and advance smart strategic priorities. Keller notes that “PE firms are driving transformation in the travel sector through a combination of operational and strategic initiatives.” It is this rare commitment to continuous innovation that truly sets the industry apart, allowing it to adapt and evolve against a constantly changing market landscape.
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