An investment vehicle set up to provide capital for growing small to medium sized travel firms in the UK says it’s rare to find prospects that specialise in volume online bookings.
Pebble Travel was established last August and is a division of private equity firm Stone Ventures, which is headed by director Stewart Baird, a former Virgin Holidays director.
It is targeting firms with up to £20 million turnover and £250,000 profit to help them grow earnings by up to four times, before finding new private equity or trade investors.
Baird said that typically prospects are split into two distinct categories: the hi-touch, consumer-facing firms usually in the luxury or specialist sectors, and the super-efficient, volume online players.
He said the latter sector is lagging the former. “There are far fewer super-efficient businesses really using technology to deal with volumes.
“Live availability and therefore booking online is really behind. It seems you either have to spend a lot of money and achieve it, or zero and forget about it. There’s not a halfway house.
“My feeling is there are lots of people who say you can do it cost-effectively but the reality is it’s very, very difficult.
“Customers want the functionality of Booking.com from a small business and that’s a real barrier to entry.”
Baird says Pebble has seen 50 businesses to date for a preliminary chat, of those on-going discussions are continuing with half.
Among the investments already made is online ski specialist Ski Solutions.
Baird said that many of the businesses it has seen to date have not done enough to prepare themselves for investment.
He said most have no idea what it is like to have money to invest in their businesses so have not thought what their growth plans are.
“Some businesses under-estimate the challenges with growth. Even with really good differentiated product we see businesses with very little technology deployed.
“They will have manual systems, which is fine for 500 passengers a year, but when it gets to 5,000 passengers it becomes a really big business.
“There may have to be a period of foundation building before we can even think of growth.”
The Pebble Travel model is to act as a stepping stone to larger private equity deals or trade buyers keeping its investment for three to five years.
Baird said Pebble had no pre-set targets for the number of deals it wants to do but that the companies it decides to invest in have to be the right fit.
“This is a long-term approach to the sector. I Would like to think in 10 years we will have had four to five business that have exited, four to five that are in growth and four to five new investments.
“We are a relatively small fund with 12-14 staff and there is a limit to how much we can do.”
Pebble will bring in travel industry expertise from its advisory board and the wider industry to help firms on the path to growth.
The board include John McEwan former chief executive of Advantage Travel Centres and Abta chairman, Ian Brooks formerly of Ideal Cruising and Medhotels, Matt Ansell chartered accountant and Craig Burton, managing director of Ski Solutions.
“There are some really good businesses out there and they have survived six to seven years of famine and all of a sudden the market is starting to move.
“What they see is this feast out there and they want to grab it with both hands. The problem is they have not thought about what are their core foundations.
“Sometimes it’s simple things, like they will say I have a really good database, but what does that actually mean? How big is it? How active is it? How do you quantify that?
“The investment cycle is quite long because this is about getting comfortable and working together and helping them to find out.
“Before we do an investment we need to understand how exactly the business works, how it’s structured. Some have never had the money to invest and do not know what they would do with it.
“There are a lot of companies out there who are very good at keeping their customers happy, but there is not a great growth strategy.”