Deals update – what's happening in the leisure sector?
January 25, 2017
Since our last edition of the Leisure Deals update in May 2016, there have been some fairly unprecedented events on the political and economic stage, with recent policy speeches endeavouring to cast some light on what may transpire as we head into 2017.
While uncertainty can be seen as negative, it does also present opportunity and after a temporary lull immediately after the Brexit vote, we saw a steady flow of deals across a range of sectors. As with previous updates, in this edition, we take a look at some of the themes we're seeing and, after surviving #SNOWMAGEDDON, we consider some of the headwinds (and opportunities) facing the industry. Please forgive some of the puns, we're running out of good ones for this edition!
Travel has booked its seat at the top of the charts in H2 2016, with a number of completed transactions, particularly in the domestic holiday parks sector. Terrorist activity, the weaker GBP and softer consumer sentiment toward holiday spend (based on our recent PwC Consumer Survey) could mean the holiday forecast is a little cloudier, and has certainly caused some operators to pack their bags. That said, in light of ongoing processes, consolidation of the hotel bedbank sector and other specialist businesses keen to take advantage of recent multiples, we see further activity both home and away.
After a steady serving of Restaurants over the last few years, a continuation of the softer LFLs we'd started to see back in May coupled with some recent challenges for certain operators, has meant investors have taken a bit of breather to digest. Christmas trading tended to be better for the sector, however 2017 cooks up fresh challenges with property rate increases and likely food inflation combining with further rises in NLW and the apprenticeship levy. Not exactly the perfect recipe, and it will be interesting to see how operators measure up against this unfriendly cocktail. It's not all doom and gloom though. Not only are we seeing some restaurateurs successfully cutting their teeth over in the US, but we see continued innovation and new concepts being plated up. The success of Loungers highlights that differentiated propositions are still attracting interest. Furthermore, as we saw over 2009-12, for strong operators willing (and able) to navigate through the challenges there could be opportunity to take sites freed up by others.
The ongoing Punch process and Liberation deal demonstrates a brewing interest from investors in the pub and bar sector. Strong LFL performance, better quality estates and the potential for cost synergies through consolidation are all attractive facets which we anticipate could drive a flurry of activity. It will be interesting to see if the weaker GBP and asset backed nature of some publicans might attract similar overseas investors as seen for holiday parks. No doubt there'll be a few more rounds before last orders!