Business for all seasons

The consumer sector – and that includes travel – “is not very popular with private equity right now”, says Mobeus partner and Active Travel Group (ATG) board member Justin Maltz. He explains: “There’s a sense that it’s quite difficult to predict consumer behaviour and it’s quite cyclical. When you look at older spend surveys, travel was important, but it was a part of the discretionary income. Surveys now suggest that it’s become much closer to non-discretionary. People start their budget for the year, and one of the first things they put in is their holiday. So, for us, it’s become a much more fundamental place to invest because that spend is less volatile than it once was. Backing distinctive consumer brands remains a core part of our investment mandate.” 

In July, ATG successfully completed its third bolt-on acquisition – MV Luxury Travel (MVLT). The first investment Mobeus made into what was to become ATG came in 2017, with a £6.3m outlay backing a secondary buy-out of Ski Solutions, which was led by current ATG CEO, Craig Burton. The strategy was clear: expand the company’s offering to luxury activity holidays that covered every season. Burton had already made moves in that direction, forming what he calls “an embryonic summer offering”, with the acquisition of two small, UK-based cycling operators. 

When Mobeus came along with its investment thesis, Burton says they were pretty transparent: “They wanted us to build out beyond skiing and rapidly expand the summer offering.” The 2018 MBO of Highlands-based adventure operator Wilderness Scotland, using £3.1m of follow-on funding, was the company’s first major move. “Wilderness was transformational for us and is a significant contributor to our recent growth,” he adds.  

Maltz says: “Our thesis was that we wanted to build a group based on the increased propensity for activity-based travel. Is that skiing? Is it walking? Hiking? Kayaking? Ski was the first investment, but we – both us and Craig, our CEO – were very keen to try and make acquisitions.”
 

Come to us 

The other element of the thesis was that, if a business is heavily or solely dependent on the ski market, all revenues come in the northern hemisphere winter – it will be a very seasonal business. “We were quite keen to balance that out by buying a summer-based business. Our original plan wasn’t necessarily to go and find an inbound business,” Maltz continues, “but in the end, Wilderness was a fantastic fit for us. We’ve got this tremendous balance in terms of customers: 50% of the group’s customers now are coming from North America and international markets, with 50% from the UK. That gives us a really nice balance alongside the summer and winter split. It’s not unique in travel, but it is a real strength in a sector with acute seasonality, to have that year-round revenue profile.” 

Wilderness had found a niche by offering luxury, active, small-group or tailor-made tours of Scotland with each day involving activities such hiking, climbing or kayaking. Its major customer base was in North America, particularly diaspora Scots combining active travel with a journey into their family’s history. “Ski Solutions was mainly taking UK customers to the Alps,” says Maltz, “while Wilderness was bringing over American groups to the wilds of Scotland, driven by people in the US wanting to explore their heritage. If you think about the origins of a lot of long-established families in the US, they are Scottish and Irish.” 

Wilderness’s founder, Paul Easto, now chief sustainability officer for ATG, was looking for growth capital in 2018 and, he says: “If we were ever to merge with another business, it would be with something complementary and counter-seasonal to what we do.” 

It’s hard to imagine a sector hit harder by the pandemic than international travel, and for many operators the blow was fatal. “We suddenly had no revenue for 18 months,” says Maltz, “but we survived for a couple of reasons. The team manages the businesses very well, but also when we at Mobeus invest in these businesses, generally we don’t take on any bank debt – we provide the capital ourselves. We weren’t having to deal with breaching bank covenants; we were able to take a more patient view ourselves; we kept all the key staff together; and we continued to invest in technology. So when we came out of COVID, we actually recovered very fast.” 

Slow travel 

Burton says the business entered the pandemic period of lockdowns with strong liquidity, and an incredibly supportive investor in Mobeus – there was no panic. And once COVID hit, Maltz knew ATG was going to be a longer hold than the usual PE investment. “It was an investment from the first half of that fund,” he says, “so we had plenty of time to work with. If we’d have held to a five-year time frame, we’d have been exiting in 2022 when the business was coming out of it and had just one good full year post COVID. If you look at M&A in the travel sector, it was very muted for two or three years after the pandemic because people were quite nervous about the sustainability of revenues and booking trends.”

ATG was still looking for acquisitions. The travel sector has a lot of owner-managed businesses, many built on their passion. “They’re not always keen to sell. We spent a lot of time in the last year of COVID and the first year coming out of it looking at targets, but – other than a small cycling business in Italy – we didn’t quite get there.”

The latest acquisition of MVLT, completed in July, means they now have a business that does higher-end custom trips in Scotland than Wilderness. MVLT covers the same Highlands and Islands landscapes as Wilderness, but its tour prospectuses have less hiking and more Michelin-starred meals.

“We had quite a lot of golf travel businesses brought to us,” says Maltz. “And we decided, no, we’re not sport – we’re outdoor activity. What we found was that the Wilderness business, particularly in Scotland, was getting people coming to them saying, ‘We’d love you to take us around Scotland. We’d love to see the distillery. We’d love to walk along the cliffs. We’d love to go to Skye. We’d love to go on a boat. But we’re 77 and 78, so we’re not actually going to cycle up a mountain.’ And we ended up developing - slightly by accident – a bit of the business in Scotland that was more custom luxury and less activity based.” MVLT has allowed ATG to build a proper division out of that.

The MVLT acquisition was funded by cash, says Maltz, “So we’re still in a position where we have no bank debt, and I think in the travel sector that’s just an enormously helpful place to be.”

“We’ve still got quite a few years left of the fund,” says Maltz, “so we’re not in any particular hurry. But there may be one more acquisition we’ll make during the life of the investment, and we’re probably 18 to 24 months away from the target date for finding the next owner or investor.” 

More sunny uplands

Each bolt-on has also – in a classic model – created efficiencies, with functions including management, finances, IT and HR operating at a group level. The business has grown to 140 full-time staff (not including freelance tour guides), with bases in London and Aviemore.  

When Burton acquired Ski Solutions from its founder in 2011 it was a breakeven business with turnover of around £10m. “When Mobeus invested in 2017,” he adds, “the group was circa £20m turnover and £1m profit. This current financial year we expect to post turnover of about £65m and £5m EBITDA. Our management plan sees us growing sales to £100m turnover by 2029.” 

Easto has been spending the past two months working with the Wilderness team to integrate MVLT. “We can layer product intellectual property from Wilderness into an already successful model that MVLT has built, and create something quite compelling that’s fairly different in the market.” 

Easto calls the offering active light adventure, but it’s also designed to appeal to whole families from young to old, as he eyes the burgeoning multi-generational travel trend that is developing among the Wilderness MVLT US high-net- worth customer base. 

And does a weaker dollar matter? On the one hand, the group’s diversified customer base hedges against that; on the other, says Easto. “The UK is not a cheap tourism destination. But Scotland and Ireland just have something special: the diaspora and the cultural linkage with North America is huge and that creates value that our customers can’t get anywhere else.”