Rising interest rates, an uncertain economic outlook, concerns about what happens when ‘revenge travel’ ends, and the recent collapse of Silicon Valley Bank have recently resulted in wave of write-downs in the valuations of travel start-ups and a general decrease in valuations for more mature travel businesses looking either to sell or raise finance.
Commenting on this trend travel investment banker Morgann Lesne from Cambon Partners states that “we’re now entering into a buyer’s market and this presents a one-off opportunity for the brave buyers out there, prices now really represent better value than ever before for those out there with secured financing or sitting on cash – in fact not just prices are negotiable, but so are terms in general including the payment schedule”.
In the past higher valuations have pushed investors and entrepreneurs to search for organic growth but Morgann feels that “perhaps this era is coming to an end, temporarily at least, as a buy-not-build strategy looks like it offers better and quicker returns. Now is the time to be courageous”.
Reflecting on the medium-term consequences of the current trend for lower valuations, Lesne also points out that this could result in a wave of consolidation across the travel technology space as “too many start-up and even relatively mature companies were based on fast growth and rapidly increasing valuations, which now that’s not happening they are seeing investors pull the plug and look for quick exits.”
He goes on to explain that “this forces them inevitably into industry sales at a time when the underlying business is under pressure due to cuts in budgets and staff volatility – in such an environment one or two sector leaders often end up cornering a market that only a short while before was flooded with competitors”.