Global Travel: A Top Destination for Capital

Almost every day there is news of additional investment flooding into the global vacation rental sector. This dynamic has all the hallmarks of the online travel agency (OTA) consolidation frenzy of the late 1990s and early 2000s, which created the global OTA giants.

Here, Harris Williams Managing Directors Will Bain, Ed Arkus and Mike Wilkins reflect on the intense investment they’ve witnessed recently in the global travel space.

In the last month alone:

• OYO Rooms (backed by Softbank) raised a war chest of $1.5bn to continue its global march. OYO is now one of the largest providers of accommodations in the world, and is set to take the leading position from Marriott in the coming months. That’s a simply staggering rise for a business that didn’t exist until 2013.
• The leading lights in the U.S., including Vacasa, TurnKey and Evolve continue to raise new funding to support their growth strategies. In the past two weeks, Silver Lake led an investment round of $319m in Vacasa, firmly securing unicorn status for the company.
• In October, Harris Williams announced the sale of Sykes Holiday Cottages (one of Europe’s leading players) to Vitruvian Partners, concluding a sale process that had seen strong buyer interest from all parts of the globe.

Harris Williams believes there will be more, especially with Airbnb rumored to be considering options for an IPO or a direct listing. Having been valued at $31bn in 2017, the company will almost certainly achieve a super-premium valuation.

Once a sleepy and almost forgotten part of the travel universe dominated by old-fashioned, analog models generally lacking sophistication, the vacation rental sector today is characterized by tech-savvy operators using technology to differentiate, drive owner and customer satisfaction, improve underlying economics and consolidate.

To get a sense of the size and growth of the opportunity, consider the following:

• Globally, $1 in every $4 spent on lodging is already spent on private accommodation¹
• There are more than 22 million short term rental properties available globally²
• Global supply growth in the vacation rental sector between 2017 and 2018 was greater than 30%³

The segment is also yielding a rich variety of business models, all of which are intertwined and reliant on the success of the category as a whole:

1. Travel aggregators. Includes online giants such as Airbnb, Booking.com and Home Away (part of Expedia). Their focus resides almost solely on the provision of digital marketing services using their vast customer reach, with an attractive commissions-based model. Their models have already proven themselves to be hugely scalable.

2. Meta/Listings websites. Examples include Hometogo and Holidu. Highly tech-efficient, and, as with aggregators, focused on digital marketing services only.

3. Flexible service operators. These companies, including Sykes, Awaze, OYO and Evolve, provide additional services to owners, generally on an exclusive basis. Services typically include yield optimization and digital marketing expertise, plus an array of property management services (such as cleaning, key drop and maintenance/upkeep). 

4. Full property service operators, such as Vacasa, TurnKey, Onefinestay and Sonder. These operators generally take full stewardship of the property and oversee every aspect on behalf of owners. This model is the most reliant on the requirement to have employees on the ground in the locality of the property.

5. Given the strong outlook for the vacation rental sector as a whole, all parts of the value chain are well positioned to continue to grow rapidly. However, in our view, the more service-oriented models will experience the most M&A activity in coming years as consolidation continues to ramp.

At Harris Williams, the travel segment is a core area of focus. Our latest engagement with Sykes builds upon a number of recent successes in the segment.

HW Travel Expertise

Announced Consumer and Retail M&A⁴

Recent Equity Offerings⁴

Public Comparables⁴

Recent North American Consumer M&A⁴

1. SeeTransparent (The State of Vacation Rentals, October 2018)

2. ibid

3. SeeTransparent (European Travel Trends, March 2019)

4. Capital IQ

The information and views contained in this report were prepared by Harris Williams LLC (“Harris Williams”). It is not a research report, as such term is defined by applicable law and regulations, and is provided for informational purposes only. It is not to be construed as an offer to buy or sell or a solicitation of an offer to buy or sell any securities or financial instruments or to participate in any particular trading strategy. The information contained herein is believed by Harris Williams to be reliable but Harris Williams makes no representation as to the accuracy or completeness of such information. Harris Williams and/or its affiliates may be market makers or specialists in, act as advisers or lenders to, have positions in and effect transactions in securities of companies mentioned herein and also may provide, may have provided, or may seek to provide investment banking services for those companies. In addition, Harris Williams and/or its affiliates or their respective officers, directors and employees may hold long or short positions in the securities, options thereon or other related financial products of companies discussed herein. Opinions, estimates and projections in this report constitute Harris Williams’ judgment and are subject to change without notice. The securities and financial instruments discussed in this report may not be suitable for all investors and investors must make their own investment decisions using their own independent advisors as they believe necessary and based upon their specific financial situations and investment objectives. Also, past performance is not necessarily indicative of future results. No part of this material may be copied or duplicated in any form or by any means, or redistributed, without Harris Williams’ prior written consent.

Harris Williams LLC is a registered broker-dealer and member of FINRA and SIPC. Harris Williams & Co. Ltd is a private limited company incorporated under English law with its registered office at 5th Floor, 6 St. Andrew Street, London EC4A 3AE, UK, registered with the Registrar of Companies for England and Wales (registration number 07078852). Harris Williams & Co. Ltd is authorized and regulated by the Financial Conduct Authority. Harris Williams & Co. Corporate Finance Advisors GmbH is registered in the commercial register of the local court of Frankfurt am Main, Germany, under HRB 107540. The registered address is Bockenheimer Landstrasse 33-35, 60325 Frankfurt am Main, Germany (email address: hwgermany@harriswilliams.com). Geschäftsführer/Directors: Jeffery H. Perkins, Paul Poggi. (VAT No. awaited). Harris Williams is a trade name under which Harris Williams LLC, Harris Williams & Co. Ltd and Harris Williams & Co. Corporate Finance Advisors GmbH conduct business.