UK OTAs hailed as ‘world leaders’

UK online travel agents are viewed as in the forefront of the global travel industry by overseas investors, according to a mergers and acquisitions specialist.

Peter Hemington, partner and head of corporate finance at financial firm BDO, said: “The UK is perceived as having the most vibrant online travel industry in the world.”

Hemington cited the majority acquisition of Travel Republic by Dubai-based Dnata as an example.

Speaking at Abta’s Travel Convention in Belek, Turkey, Hemington said: “Dnata sees the UK as in the forefront of the travel industry.”

Dnata, part of the Emirates group, bought 75% of leading OTA Travel Republic in January, in a deal worth “a little less than £100 million”, according to Hemington. BDO acted as a consultant on the deal.

The deal was completed in a mergers and acquisitions market that is “half the volume of the mid-2000s” and well down on 2011, said Hemington, adding: “Banks are being very careful about lending.”

He said the Travel Republic deal was completed at close to nine times the rate of earnings before interest, tax and depreciation, or ‘ebitda’, an accepted indicator of underlying operating profit.

Hemington said: “Business are going at higher prices because of the demand.

“Private equity (PE) firms are raising a lot more money than they are able to spend. They have lots of money and are desperate to spend it.

“So when a good business comes up for sale, it gets a fantastic price. There are so few deals.”

He said: “Dnata has a strong offering in the Gulf, but not much internet presence and feels threatened by the developing online market in India. It bought Travel Republic to learn from it.”

Hemington added: “Travel Republic grew from nothing into a business with a transaction value of £450 million in four or five years, generating a £10-million annual profit.

“It’s ruthless on costs and gets volume from offering very good deals. It’s all about economies of scale. The business model has to be driven every day. It’s a tough environment.”