Private equity steps up push into UK holiday parks
Never before has Huw Pendleton experienced such interest in Celtic Holiday Parks. In the two decades since the Welshman launched his business, two or three potential buyers might contact him every year, but in the last six months alone he has been approached by more than double that number.
Celtic, whose three Pembrokeshire sites host static caravans and timber lodges, is an attractive investment for international financiers, often managing multi-billion dollar funds, who are increasingly keen to invest in the market British holiday. The company owns the freehold land and has planning permission to add 100 locations to its existing 520.
“The potential adaptability of the parks business means this is a very attractive proposition for finance companies that have recently become familiar with the industry,” Pendleton said.
The UK’s holiday park sector, sometimes seen as the poor cousin of overseas holidays given its lower cost and the country’s fickle weather, had its hottest year yet for deals , according to operators and agents.
Private equity groups are springing up, having spotted an opportunity to merge small sites that are relatively inexpensive to acquire into larger companies, adding debt to their balance sheets and sometimes selling their freeholds in the process.
Blackstone paid around £3bn for Bourne Leisure, which includes Haven Holidays, in January and plans to add smaller operators to the group. In June CVC Capital Partners bought Away Resorts for £250m, then in August Aria Resorts and this month Coppergreen Leisure joined forces.
US real estate investment trust Sun Communities paid $1.3 billion for Park Holidays in November and flagged new deals, highlighting a “significant external growth opportunity” in the “very fragmented UK market”.
Possible targets include Parkdean Resorts and Park Leisure, which are up for sale, the latter of which could fetch more than £175million according to a person involved in the negotiations.
Independent owners are selling at record valuations. Simon Altham, commercial director of holiday rental company Awaze, said every time a park business is sold, owners across the industry make ‘obsessive calculations’ about what they might receive for their business .
Estate agency Savills estimates that since Blackstone’s deal for Bourne Leisure in January 2021, holiday parks are trading 20-30% above what they might have brought in 2019.
“We’re seeing premiums and multiplications made in the last 12 months that we haven’t seen before,” said Chris Sweeney, director of Savills’ leisure team. “It’s a perfect storm. . . You have existing operators looking to expand and new players in the market like private equity who can see good investments and exit.
The UK, where planning laws are favorable, is home to around 6,000 holiday parks, according to Savills, generating around £9.3billion in visitor spending before the pandemic, according to research by UK Caravan and Camping Alliance.
Some are specifically for caravans while others offer accommodation ranging from multi-room lodges to shepherd’s huts. Groups with more than 10 parks make up 7% of the industry, Savills said. Much of the rest are independent owners of one or two sites, making the industry ripe for consolidation.
The pandemic “has shaken a group of homeowners from their slumber,” said a person who has worked on multiple park deals. “They’ve been saying for 30 or 40 years that they don’t want to sell and now they’re thinking, if it wasn’t for that [state-backed loan] I would have gone bankrupt.
Holiday parks offer easy wins. They’re easy to retrofit, allowing operators to raise prices by adding more luxurious accommodations, hot tubs, plasma screens and Wi-Fi.
In times of uncertainty and rising inflation, the parks are also less shaken by travel restrictions and economic pressure. “If the economy is good, people add holidays to the UK. If the economy is slightly struggling, people take holidays at home rather than abroad,” said Altham of Awaze.
Parks also lend themselves well to financial engineering. Small sites or groups can often be purchased for a lower multiple of their revenue than a large corporation. Buyout groups therefore hope to pocket the difference and achieve economies of scale by consolidating multiple sites. Local businesses such as veterinary practices and dental practices were similarly consolidated.
Park freeholds can also be resold and rented out, increasing landlords’ returns and making money in the short term, while forcing businesses to pay rent for decades. Since 2017, Parkdean, Park Holidays, Park Leisure and Away Resorts have sold freehold properties to outside investors, according to company filings.
Typically, such deals are done either before a buyout group sells a business “as a way to crystallize value” or by a new private equity owner as a way to pay for the acquisition itself. , said Tom King, head of hotel investment properties in the UK. at the real estate consulting firm CBRE.
Buyout groups have had mixed success in the industry. Caledonia Investments said it nearly tripled its money on Park Holidays, which it owned from 2013 to 2016. That equates to a 39% annual return, according to Peter Morris, a research associate at Oxford University’s Saïd Business School. , which analyzes private equity. redemptions.
But those who invested in the run-up to the 2008 crisis fared less well.
San Francisco-based GI Partners bought Park Resorts for £440m in 2007, but ceded control to UK-based Electra Private Equity five years later via a debt restructuring, after Electra spent £70m to buy his debt. GI declined to comment.
CBPE Capital’s return on Away Resorts, which it owned between 2008 and 2015, was around 7% a year, slightly below the FTSE 250 index over the same period, according to Morris’ analysis. CBPE declined to comment.
And while park owners are reporting record bookings for 2022, some worry the boom won’t last.
“Private equity firms and especially their lenders like to say that UK holiday parks are resilient in the recession,” Morris said. “In fact, investing in holiday parks is primarily about the same two things as any other real estate investment – location and timing.”
But in Pembrokeshire, at the south-west tip of Wales, Pendleton feels confident, having spent £2.6million upgrading its venues – more than five times its usual annual development budget – as they were empty during the closings. The “many different revenue streams” available, such as trailer rentals and restaurant sales, can help the parks industry through turbulent times, he said.
Although Covid caused “a real rollercoaster” emotionally, Pendleton said he was still “too young” at 50 to sell out and retire. But he quickly added, “You don’t want to miss the boat.”