Harris Williams Consumer Update

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

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Public Markets Overview

Key Trading Statistics4

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Public Company Sector Performance (12-Month % Change in Stock Price)4

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Consumer and Retail Industry Stock Performance4

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Recent Equity Offerings4

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M&A Overview

Announced Consumer and Retail M&A4

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Recent Equity Offerings4

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Public Comparables4

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M&A Transactions

Recent North American Consumer M&A4

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

2. ibid

3. SeeTransparent (European Travel Trends, March 2019)

4. Capital IQ

 

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