If you’re thinking about investing in a UK travel business, there are several important factors to consider. In this post, TTC Director Martin Alcock shares four things to keep in mind.
Financials: have you got the full picture?
A thorough review of your target investment’s financials is a must. But publicly available information will only get you so far. To truly understand your target’s performance, you’ll need access to something more granular.
Ideally, you’ll need up-to-date management information showing segmental trading performance and a detailed cash flow forecast.
More importantly, you’ll also need to understand your target’s business model and exactly how they operate to get the full picture.
For example, travel companies may sell as an agent or an organiser. Each has wildly different accounting methods, making their numbers very hard to compare.
It’s not always obvious whether your target is an agent or organiser. Often, they may be both!
Revenue recognition is just one of the many complex areas of travel finance, but it’s usually the most important. Our post on revenue recognition in the travel industry will help you get started.
Regulatory requirements: what licences and memberships are in place?
The UK travel sector is tightly policed by government regulators like the CAA and important trade organisations like ABTA and IATA.
These organisations generally have change of control provisions, meaning you may need their permission before completing a change of shareholding.
Make sure you understand which licences and memberships are critical to your target and the steps you must follow before completing your investment.
You should also understand the likely consequences of a change of control. For example, you may need to pay fees and provide additional security, which you’ll need to factor into your budget. Find out about our change of control consultancy services here.
Management: is there a good team running the business?
If you’re planning to invest in a travel business as an owner rather than run it as an operator, it’s vital you have a quality management team in place.
You’ll need to evaluate the current management team’s experience, qualifications and track record of performance. Get a clear understanding of who carries out the core functions, and identify any skills gaps. If you’re buying someone out, make sure you understand which important functions may be walking out of the door on completion.
Remember: unless you have a strong management team running the business for you, you don’t have an investment. You have a job!
Due diligence: what do you need to look out for when investing in a travel business?
No matter what size company you’re investing in, it’s always wise to do some due diligence (DD) to ensure you understand what you’re buying and verify the information and claims made by the seller.
Reviewing your target’s market position, customer feedback and growth prospects will help you make a more informed investment decision.
DD can take many forms: larger, more complex deals usually run separate DD processes for finance, tax, legal, commercial, and even technology. Each DD process may result in a weighty report running to many hundreds of pages.
Conversely, on smaller deals, you may be happy engaging a boutique sector specialist like TTC to kick the tyres and review the key risk areas like revenue recognition, regulatory compliance and quality of earnings.
The choice is yours, and the level of DD is normally driven by the size of your investment cheque and the level of your risk tolerance. You can check out our range of targeted DD services here.
Considering these factors will help you make a more informed investment decision.
If you’d like to discuss your M&A plans in more detail, we’d be happy to hear from you.
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