On the Beach Buys Classic Collection for $25 Million as Package Rules Get Upended

UPDATE: On the Beach CEO Simon Cooper said the new European rules about dynamic packages were “absolutely critical in terms of how we started thinking” about acquiring Classic Collection Holidays. He said he was aware about the timing of the implementation of the regulations two to three years ago.

Cooper said the appeal of buying Classic, which sells luxury beach holidays, was for On the Beach to launch a hybrid strategy, part online and part offline, and Classic’s distribution network of more than 1,000 travel agents.

The new regulations altered the definition of a dynamic package so that now if agents cobbled the elements together, they would assume the legal obligations and risks. Previously, most responsibility fell to the airline or hotel, for example.

Independent travel agents, or those in smaller shops, often don’t have the infrastructure and resources to do the dynamic packages themselves now, and so Classic will take on those burdens for agents when they use the new portal, Classic Online, Cooper said.

It is “unlikely” there would be a wave of consolidation in the UK based on the new European Union rules on packages, Cooper said, but perhaps elsewhere in Europe that might be the case.

(The original version of the story follows.)

On the Beach made a play to increase its share of the UK short-haul holiday market with a deal to acquire Classic Collection Holidays, which packages luxury beach vacations for offline travel agents, for $25.4 million (GBP 20 million) in cash and stock.

The deal, announced Thursday by publicly traded On the Beach, was driven in part by new European Union vacation package rules that give travel agents — rather than the airlines and hotels — more of the burdens and risks associated with dynamic packages. The rules went into effect July 1.

On the Beach claims about 20 percent UK market share of short-haul beach holidays, and the acquisition would up its portion and enhance earnings, the online travel agency stated. The hoped-for gains would come in greater access to short-haul beach holidays sold by traditional travel agents.

Earnings would accrue despite new investment that On the Beach pledges to make in a new Classic Collection online portal, Classic Online, that would be available to off-line travel agents to access beach holidays without agents having to assume all the new risks associated with the EU vacation package rules, On the Beach said. Some of that risk would be taken up by Classic Online, which would dynamically package the holidays, the company said.

Classic Online, which would be a new business-to-business brand only, and therefore unavailable for consumers, would use On the Beach technology,  the company said.

The deal calls for On the Beach to pay Worthing, UK-based Classic Collection, with its 124 employees, some $18.6 million in cash when the deal closes, another $3.4 million a year later, and $3.4 million in stock.

Classic Collection boss Nick Munday and its management team will stay on, and run the business, On the Beach said.

“We are pleased to welcome Nick and the Classic Collection team into the On the Beach family,” said On the Beach CEO Simon Cooper in a statement. “We are excited about the opportunity to access the circa five million short haul beach customers that book holidays offline each year. Classic Collection has an excellent reputation in the industry and we look forward to working with Nick and the team to expand both of our product offerings.

In its most recent earnings update, which includes that 12 months ending October 31, 2017, Classic Collection reported profits of $3.3 million, and $23 million in assets.

As with several other retailers, including TUI and Thomas Cook, On the Beach said Thursday that exceptionally hot weather in the UK, as well as the World Cup, has hurt vacation demand, impacting revenue growth in the April 1 to August 15 period. However, the company said it reduced its marketing spend, and still expects its adjusted profit before tax for the year to be in line with management expectations.