French travel sector deals take off

Francesca Veronesi
15 November 2018

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Investments in the French travel space have rebounded in 2018, with the perception of geopolitical threats subsiding and shifts in consumer habits presenting new opportunities. Francesca Veronesi reports

After an investment frenzy for French travel-related businesses in 2015, with €1.74bn invested in eight companies, just €271m was invested in the sector in 2016 and 2017 combined. However, the industry has made a comeback in 2018, with €1.37bn invested in eight companies to date.

The most notable deals so far this year include Equistone buying online travel agency Karavel-Promovacances; Ontario Teachers' Pension Plan acquiring a stake in mobile-home holiday rental company European Camping Group; and Certares, BPI France and Africinvest buying Marietton, a provider of tour and travel services.

The uptick in investment is a welcome development for the industry, which had been struggling. Aside from 2015 and 2018, the most recent year to see aggregate deal value of more than €500m was 2006 – when Eurazeo acquired Europcar for a record €3.08bn, according to Unquote Data.

There are many challenges faced by the sector, not least of which are technology-related structural shifts and an economic crisis that has limited consumers' holiday budgets. Geopolitical factors, including a perceived threat of terrorism and political instability resulting from the so-called Arab spring, have also had an impact. Having said that, investors tell Unquote that concerns surrounding terrorism have largely become more "normalised" to the point that "caution periods" for tourists considering international travel have shortened significantly.

Culture club
Siparex partner Olivier Golder says the surge in investments this year is in part due to the fact that customers are developing new expectations and habits, which is in turn requiring the industry to adapt. "Customers are looking for ever-more tailored experiences – so-called 'money-can't-buy experiences' – especially when travelling abroad. On top of all the benefits brought by great accommodation, restoration and entertainment, they also appreciate local experiences during their stays. For example, our portfolio company NG Travel operates Kappa Club, a brand that offers visitors authentic moments with the local population and the opportunity to learn about their culture, all in the proximity of their hotels."

Business models focused on experiences are proving particularly attractive to VCs. Evaneos, which provides customised multi-day tours by connecting holidaymakers with professional local agencies, received €70m in funding from a number of firms in September. Idinvest investment director Alban Wyniecki says: "Startups are looking to provide specific experiences to people while they are travelling, instead of only providing the package option of travel and accommodation deals. For example, French startup Adrelanine Hunter specialises in providing extreme sports activities."

The camping sector is also offering many opportunities, with the French market particularly fragmented and the majority of operators being domestic firms. Bruno Candelier, partner at France-headquartered Apax Partners, which acquired the outdoor accommodation group Sandaya in 2016, explains that camping is expected to become increasingly popular: "More people, especially families, value the idea of spending their holidays being in touch with nature."

Customers are looking for ever-more tailored experiences – so-called 'money-can't-buy experiences' – especially when travelling abroad" – Olivier Golder, Siparex

Unlike a few years ago, when a number of bricks-and-mortar travel agencies were forced to shut due to digitalisation of the sector, those that are still operational today remain important to a more senior clientele that is unaccustomed to internet booking. Nevertheless, as is the case globally, digitalisation of the sector is certainly advancing.

"The vast majority of hotels sell – no matter their size – through different online channels, such as Booking.com or Secret Escapes," says Idinvest's Wyniecki. "There is demand for technology in this sense and a need for it to be provided. Therefore, efficient online marketing providers that are able to retain customers once they've been exposed to advertising are vital."

With the industry undergoing wholesale changes, new businesses are needed to meet a wide array of new consumer demands and technology requirements. Private equity is embedding itself in the growth story of those firms.