In case the latest couture collections to hit the high street are not enough of a signal that the 1980s are back, the boom in private equity funding should do the trick.
The big question is whether we are witnessing another stampede of the Barbarians at the Gate, known for their crude, buy it, strip it, flip it tactics, and should thus brace for the worst.
The jury is very much still out on whether the recent spate of private equity activity will deliver long-term growth, where owners, investors and management are all equally better off.
Private equity firms get a bad rap. Yes, some of the biggest firms have worrying legacies, but they also boast some of the best returns for investors. Some market analysts observe that, over the past two decades, buyout firms have consistently delivered higher than average annual returns on the Standard and Poor’s 500 index, a common benchmark for US stockmarket performance.
But Steven Kaplan of the University of Chicago and Antoinette Schoar of the Massachusetts Institute of Technology note that returns to investors trail the S&P, once you take into account the fees paid to fund managers.
Still, other market observers insist companies taken public by private equity owners often outperform those overtaken by other listed companies.
There are currently about 2,700 private equity funds, managing assets of $500 billion, according to The Economist, citing estimates by Private Equity Analyst.
That figure only looks set to rise this year, as some of the biggest spenders lock their sights on some of the world’s largest firms and best-known brands.
The big three – Kohlberg Kravis Roberts, Blackstone Group and Texas Pacific Group – have stakes in several types of industry, but they all seem to share an interest in travel, with KKR thus far focusing on property and Blackstone and TPG on travel technology.
If the recent Red Herring private equity meeting in Cannes was anything to go by, then there is no stopping private investors’ interest in this industry, though the distribution of wealth might undergo a considerable shift.
One conference attendee observed the increasing interest in European online travel firms (eg Cheapflights), which are now rivalling the US to capture venture capital and private investment attention.
This is to say nothing of the explosive amount of private equity and venture capital flooding India’s shores to fund travel technology start-ups. The Indian online leisure business travel market will reach $1.3 billion this year, according to PhoCusWright, with private equity investments in travel portals driving a healthy portion of that growth.
Meanwhile, established Western online brands and technology firms such as Travelocity are migrating to India. Amadeus boasts that it now works with five online travel agencies in India and is encouraging more attention.
But with this month marking the seventh anniversary of the dot-com bubble burst, private equity firms’ love affair with the travel technology sector might feel more like a nightmare to some jittery stakeholders. Most will hope these jitters are unfounded.