When an investment banker says the market isn't going to deliver value, it's a wake up call.
Dealmaking has kept short-term rental businesses in Europe busy. The past few months have seen an uptick in activity — be it mergers, or acquisitions or rebrandings.
Holidu folded its subsidiary Bookiply and private equity firms Accel Partners and KKR advised the merger of proptech companies UK-based Reapit and Canadian company Payprop.
With this activity, we are finally witnessing the consolidation of the hyper-fragmented market. But why is Europe seeing more of it than the U.S.?
Skift spoke to Morgann Lesne, partner at Cambon Partners, an investment bank focused on M&A in mid-cap transactions to find out.
Here are the top takeaways below. Edited for clarity:
Why are we seeing more dealmaking in Europe now?
I’m not surprised at all, especially in a hyperfragmented market such as Europe — this is really specific to Europe, because you’ve got different countries and different cultures, and a lot of small local champions of their market.
So this is a wake up call of sorts, to realize that the real potential of those businesses as dominant players of their markets is no longer true. It makes a lot of small companies that have raised money at high valuations and are subscale. And we will see more of these in the coming year.
What do you make of the deal value?
Deal values are just signals that this market is not going to deliver the value that we expected. And that’s just the reality of it.
There are a lot of players who went to market at a good time, and are getting conscious of the real value of a service company. And we’re going to transactions in the range of 5-20 million euros of enterprise value everywhere. And that is really very small.
We’re turning down a lot of people coming to us for advice on transactions, because the value we can extract from each transaction is not going to be huge — sometimes at the same value that was invested a few years ago.
On the consolidation strategies of European companies
We will only see more consolidation in this market.
Holidu is in a good position to go shopping and buy a lot of those small companies at subscale at a relatively low multiple — I believe HomeToGo can do that, DoveVivo can do that too.
So we’re going to see a small number of these like potential consolidators on the market. But these companies will never pay a premium for the businesses they buy — they will be extremely disciplined in the way that they look at valuations.
They know very few of these companies are actually making profits. So it’s going to be, maybe a fraction of the net revenue sometimes.
So if I was a new entrant to the market, I would first look at who’s out there and whom could I buy instead of reinventing the wheel.
What is a potential deal that would take you by surprise?
In terms of distribution, if Holidu and HomeToGo were merging — I don’t know. But those two companies are still small, relatively small. The other would be if Vrbo potentially buys one of these two brands.
I don’t think Airbnb will make relevant move in this space now, they don’t really need to do it through acquisitions — Airbnb is not desperate at this point. I am not mentioning Vacasa because honestly, I don’t know where the company is going.
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Photo credit: The interior of an Airbnb property in Italy. Source: Fattoria la Maliosa/Flickr Fattoria la Maliosa / Flickr