Hospitality could see 2024 M&A surge
Analysts are predicting that the UK hospitality sector could see a surge in dealmaking activity during 2024, despite the industry facing ongoing challenging trading conditions. The sector has seen relatively resilient M&A activity during 2023, against a wider backdrop of weak dealmaking, and recent months have seen an uptick in hospitality deals.
The sector has faced a difficult year amid rising costs and the cost of living crisis. During the first quarter of the year, Price Bailey figures showed that restaurants had closed at their fastest rate for a decade, while Altus Group found that pub closures during the first half of the year almost matched the figures for the entirety of 2022.
Amid such challenging conditions, M&A volumes in the industry have remained relatively steady compared to 2022, but valuations and deal sizes have both been lower. During the first 11 months of the year, UK hospitality deal value totalled £9.5 billion, compared to £13.7 billion during the whole of 2022, according to Pitchbook data.
Low valuations and the economic challenges facing smaller hospitality businesses have helped keep deal volumes steady, with Pitchbook figures showing that the first 11 months of 2023 saw 156 deals, a comparable rate to the 179 seen during 2022.
Furthermore, over the past few months, there has been an uptick in larger deals, including Apollo Global Management’s £506 million deal for Wagamama owner The Restaurant Group (which was announced in October and completed this week) and pub chain Young’s £162 million acquisition of City Pub Group.
This increase in dealmaking is being seen as a case of catch up, as a result of deals being delayed due to factors such as tight financing conditions, higher debt costs, the COVID-19 pandemic and the impact of the war in Ukraine.
At the same time, there have also been signs of economic improvement, with inflation falling and a growing belief that interest rates could soon be cut, which could further encourage M&A by making the dealmaking market more accommodating.
Speaking to This is Money, AlixPartners Managing Director Graeme Smith said that “a more stable market environment” and “resilient” consumer confidence, meant that investors were gaining the “confidence to undertake M&A deals”.
All this being said, valuations for UK businesses still remain low, especially in comparison to hospitality firms in places like the USA. As investor confidence increases, this could be another driver of M&A activity, particularly with regards to overseas investors seeking to enter the UK market.
Interactive Investor Head of Markets Richard Hunter said: “With valuations capped across both hospitality and retailing sectors due to caution on the outlook for the increasingly pressed UK consumer, the possibility of further M&A activity is not difficult to envisage.”
Read more about the optimism for improved dealmaking in 2024
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