What is the outlook for the UK Leisure & Hospitality industry?
What is the outlook for the UK Leisure & Hospitality industry?
Leisure & Hospitality (L&H) has once again demonstrated its resilience and ability to recover from the pandemic. The sector is on a strong footing to meet any new challenges.
Throughout H2 2021 and H1 2022, L&H businesses bounced back relatively quickly by responding to the pent-up demand for leisure activities. At the same time, deal activity returned to pre-pandemic levels, casting a vote of confidence in the sector (Figure 1).
Below are just some of the noteworthy deals that have completed in the last few months:
- Feb 2021: Blackstone acquired Bourne Leisure for c.£3 billion;
- Feb 2021-present: Since launching, RedCat pub investment vehicle has acquired over 100 pubs and pub hotels in the UK, including the Coaching Inn Group;
- Sep 2021: Gail’s Bakery secured investment from Bain Capital valuing the company at >£200 million;
- Oct 2021: EuroGarages acquired Coopland – one of the largest UK bakery chains;
- Dec 2021: Fortress PE acquired Punch Pubs for c.£1 billion;
- Apr 2022: Sun Communities (REIT) bought Park Holidays for c.£950 million;
- Apr 2022: Sykes Cottages, acquired Forest Holidays from Phoenix Equity Partners; and
- May 2022: Proprium Capital Partners, acquired 48.9% of Admiral Taverns for £55 million.
However, we expect a decrease in the L&H deal activity in the second half of 2022. Macroeconomic headwinds including staff shortages, supply chain issues, rising interest rates and inflation will undermine short term confidence and make investors more cautious.
Despite the current uncertainty, many L&H companies are using this time and the lessons learnt during the pandemic to re-assess their business models, review cost-structures, reshape their offerings and prepare for a transaction in 2023/24. We expect the market to be in stronger position by the second half of 2023, with inflation predicted to ease to 3.5% before falling back to the Bank of England’s 2% target by Q4 2024.
Looking ahead, we believe there will be an increasing volume of M&A activity in L&H and interest from PE investors; mainly in the restaurant, pub, and holiday park sectors, where many operators have been adapting rapidly to consumers’ evolving tastes and cost pressures.
Figure 1: Volume of UK Leisure & Hospitality M&A Transactions
Source: BDO Analysis & Mergermarket
* Deals reported to 5 July 2022