Travel & Hospitality Tailwinds Bode Well for Technology M&A

As the travel and hospitality industry rebounded from pent up demand post-Covid, tailwinds from those trends indicate it’s a good time for technology founders in this vertical to sell their business.

Despite inflation, travel is still a priority for consumers in 2023 according to Forbes Advisor, and Morgan Stanley found in a recent survey that even business travel was bouncing back to pre-pandemic levels. While the travel and hospitality industry is facing headwinds from inflation and supply chain issues that are affecting the economy at large, it hasn’t seemed to slow their overall growth. Here are some notable trends driving current tailwinds and some looming headwinds that travel and hospitality tech founders should consider when deciding if the time is right to make an exit.

Digital Nomads & Remote Workers

While digital nomadism was becoming increasingly popular even before 2020, new remote policies have become nearly widespread and are enticing droves of workers to dip their toes into the lifestyle.

Thanks to the conveniences provided by hybrid remote work policies and digital function technologies, employees have been taking short trips over long weekends or traveling for extended "hush" trips and continuing to work without telling their employers. Short term vacation rentals are reaping the benefits of this movement, and hotels are even rearranging rooms to increase workspaces, investing in better remote-work infrastructure, and marketing to remote workers with discounts on extended stays.

Deloitte anticipates that remote work flexibility will contribute to both longer stays and a higher frequency of travel among the 50% of American workers who can now do their jobs remotely.

M&A Implications

Remote work flexibility is a boon to the industry and to short term rental companies like Airbnb and VRBO in particular, which we’ll address further in the next trend. Because many companies have adopted a hybrid work policy and workers have been taking advantage of this opportunity to travel more and work remotely, out of all the software categories Vista Point Advisors work in, travel technology has been one of the most active lately. Owners of travel and hospitality technologies should take advantage of this positive outlook now.

Short Term Rental Proliferation & Fragmentation

Airbnb revenues reached a record high in the fourth quarter of 2022. They saw travelers return to high-density urban areas and cross borders to other regions despite lingering travel restrictions and foreign currency volatility. They lead a category that has been growing quickly and gaining market share, which has encouraged proliferation in the travel technology landscape.

While big hotels are large enough to build their own operating systems, short term rental groups are much more fragmented. They’re almost always regional and are smaller entities managing 10-100 properties, which are often individual homes.

M&A Implications

The boom in short term rental inventory has made it necessary for vacation rental management companies to adapt technology in order to keep up with the evolving landscape, such as switching from excel, pen and paper, and other legacy processes to using property management software.

The property management SaaS space is still relatively fragmented as many vendors have chosen to focus on particular geographies or point solutions. This fragmentation provides a real opportunity for investors and strategic acquirers to consolidate market share and packaging these solutions together, which offers even more promising opportunities for founders.

Interest Rates and a Looming Recession

Consumer credit has been pretty strong over the past few years, but as interest rates increase, debt and credit card balances becomes more expensive, so that kind of ding on discretionary income, both for individuals and businesses, could negatively impact the travel industry in the near/medium term.

If there is a recession, it’s safe to assume that companies will start pulling back on expenses like business travel again, and that affects the industry even more than recreational travel.

M&A Implications

From a pure growth perspective, now is an excellent time to sell because there are numerous tailwinds in the sector and potential headwinds that could put a pause on the industry as a whole. While travelers have adjusted to a state of anxiety about the economy by adjusting their trips (such as finding longer, cheaper flights or choosing destinations where the exchange rate is favorable), we won’t know how damaging a larger downturn will be.

Shrinking Margins for Hotels

Hotels have been battling shrinking profit margins as inflation and supply chain issues affect the price of food, beverages, and other supplies. Labor has become more expensive too as hospitality wages increased 18% since 2019.

In addition, insurance costs have risen, and properties with liquor, live entertainment, or spa liabilities can expect to pay up to 20% more on insurance in 2023.

M&A Implications

Hotels have historically been focused on topline revenue generating solutions, but given the margin compression, they need to be more data-driven to increase efficiencies and manage expenses. That means hotel management software companies that can assist hotels with this headwind can expect more opportunities and higher valuations.

Labor Shortages for Hotels

Like other verticals, hotels are also experiencing a severe shortage of workers with 87% of lodging operators reporting shortages. Hotel employment is down by almost 400,000 jobs compared to February 2020.

This has given unprecedented opportunities for hotel employees with wages and upward mobility higher than ever. Hotel benefits and flexibility are improving as properties try to entice and keep their staff.

M&A Implications

Hotels are seeking technology solutions to manage labor, conduct employee research, personalize benefits, and create a culture and system of rewards to show staff they are valued. Labor management point solutions that can integrate with property management systems should be taking advantage of these trends to catch investors’ attention.

A Complicated Outlook That Still Looks Good for Tech Founders

While news about travel and hospitality has been a mixed bag with both optimistic and cautionary messages, our experiences at Vista Point Advisors indicate that if you’re looking to sell your travel technology company, particularly in property management software or point solutions that can integrate and differentiate other travel technology systems, now’s the time to take advantage of these trends.

To learn more, check out some of the benefits of selling your business during a growth phase.