Latest / The Buyout Show with Fexingo: Private Equity, Roll-Ups, and Business Acquisitions / How Private Equity Is Rolling Up Tour and Travel Operators
Transcript
- Lucas: So this might surprise you — when I say 'tour operator,' what comes to mind? Luna: Honestly? A busload of retirees with name tags. Maybe a guide holding a little flag. Lucas: Right. That's the stereotype. But the reality is, tour operators are a massive, fragmented industry — and private equity has quietly been buying them up. We're talking hundreds of small, independent companies that run everything from trekking in Nepal to wine tours in Tuscany. Luna: Okay, I can see why PE would be interested. Travel's been rebounding hard since the pandemic. But these are small businesses — mom and pop operations. What's the play? Lucas: The play is exactly what you'd expect: buy up a bunch of them, centralize the back office, cut costs, and cross-sell customers across brands. But the interesting thing is the timing. The pandemic crushed travel, and a lot of owners were ready to retire or cash out. So firms swooped in. Luna: Give me a concrete example. Who's been buying whom? Lucas: Let's look at Intrepid Travel. That's a big name in small-group adventure travel — they do trips to places like Morocco, Vietnam, Peru. In 2021, TPG, the private equity giant, bought a majority stake. And then they started acquiring smaller operators like Peregrine Adventures and Geck's Adventures — which actually were already under the same umbrella. Luna: So they roll up within the roll-up. Consolidation within consolidation. Lucas: Exactly. And then you have The Travel Corporation, which owns Trafalgar, Contiki, and a bunch of other brands. They've been on an acquisition spree too, buying up regional specialists. The idea is: you have one customer acquisition engine, one booking system, one accounting department — but twenty different trip portfolios. Luna: How much can you really save on the back office? These aren't giant enterprises. Lucas: It adds up. Tour operators typically run on really thin margins — like 5 to 8 percent EBITDA. But they generate steady cash flow, and they have low capital expenditure. You're not buying factories or building hotels. The main assets are the brand, the supplier relationships, and the customer list. Luna: So the PE play is: buy at maybe 6 or 7 times EBITDA, squeeze some costs, cross-sell, and sell later at 10 or 11 times. That math works if you can scale. Lucas: That's exactly the thesis. And the industry is perfectly set up for it. There are thousands of independent operators — many doing under $10 million in revenue. The owners are aging out. The next generation doesn't always want to run a tour company. So PE comes in as a liquidity event. Luna: But here's what I wonder: the whole value proposition of a small tour operator is the local knowledge, the personal relationships, the unique experience. If you roll them up and standardize everything, don't you kill the magic? Lucas: That's the central tension. The firms know that. So they typically keep the brand names and the local guides. What gets centralized is the stuff the customer never sees — the website, the CRM, the payment processing. The pitch is, 'We leave the product alone; we just make the business run better.' Luna: Does it hold up in practice? I've seen roll-ups in other industries where the cost cutting eventually creeps into the customer experience. Lucas: It's early days in travel. But there are cautionary tales. Look at what happened in the UK with Shearings — that was a big coach tour operator that got rolled up, loaded with debt, and then collapsed during the pandemic. When you lever up a thin-margin business, there's no room for error. Luna: So the risk is financial engineering, not operational improvement. Lucas: Exactly. The best PE firms are the ones that actually bring operational expertise — better yield management, smarter marketing, data analytics on which tours sell best. The worst ones just pile on debt and hope to flip it. Luna: What multiple are these deals getting done at right now? I've heard tour operators trade at a discount to other travel businesses. Lucas: Yeah, typically they trade at a discount because of the low margins and perceived fragility. We're seeing deals in the range of 5 to 8 times EBITDA for independent operators. But if you're a larger platform like Intrepid, you might command 10 or 11 times. The roll-up thesis is that you buy at the lower multiple and eventually sell the combined entity at the higher multiple. Luna: That's the classic 'multiple arbitrage' — but it only works if you can actually grow EBITDA, not just cut costs. Lucas: Right. And the growth lever is cross-selling. If you own a tour operator specializing in Italy and one specializing in Japan, you can start marketing Italian tours to the Japan customer list. That's a relatively low-cost way to boost revenue. Luna: And the customer data is probably the most valuable asset. These companies know exactly who their customers are, what they spend, where they've been. Lucas: Exactly. That data is gold. And it's something a small operator often doesn't use well. They might have a spreadsheet. A PE firm can build a proper CRM and start segmenting and targeting. Luna: So who are the big buyers right now? You mentioned TPG. Who else is active? Lucas: There's KKR, which backed a platform called 'The Travel Collection' — they've been acquiring in the luxury tour space. Also, smaller mid-market firms like L Catterton and BDT Capital have made bets. And then you have strategic buyers like the travel conglomerate TUI, though they're more focused on vertical integration. Luna: But the independents are the main target. I'm thinking of a company I know — a small family-run tour operator in Costa Rica. They do custom eco-tours. Could they get bought? Lucas: Absolutely. That's exactly the kind of target. They have a niche, a loyal customer base, and they're probably tired of dealing with the administrative headaches. A PE firm would come in, offer a lump sum, and say, 'You keep running the tours, we'll handle the rest.' Luna: And that's probably appealing to a lot of owners. I can see why the industry is ripe for this. Lucas: It's happening faster than most people realize. We're going to look back in ten years and see that half the independent tour operators were consolidated into maybe a dozen big platforms. Luna: Let's take a quick step back. You know, this kind of conversation is exactly why people listen to this show. And speaking of that — a quick honest thing. We keep this show ad-free, and that's intentional. A handful of listeners chip in monthly through buy me a coffee dot com slash fexingo, and that's what funds making this many episodes. If these conversations have moved your work forward in some small way, that's the place. Lucas: Yeah, it's a small group that keeps it going, and we're grateful. We don't want to interrupt the flow, but it's worth mentioning because listener support is what keeps us independent. Luna: Exactly. And we'll get back to the roll-up story. So, Lucas, one thing I haven't heard much about is the international dimension. Is this a us only trend? Lucas: Not at all. In fact, some of the most active roll-ups are happening in Europe and Australia. Intrepid is Australian, TUI is European. And there's a big push in Asia — Exo Travel, which specializes in Southeast Asia, got acquired by a pe backed platform a few years ago. Luna: So it's global. And I imagine the pandemic created a generational opportunity. A lot of owners just wanted out. Lucas: Exactly. The pandemic was a shock that forced many to reconsider. Those who survived came out leaner but also more open to selling. The buyers were waiting with capital. Luna: What about the guides and the local staff? In a roll-up, they often bear the brunt of cost cutting. Lucas: That's a real concern. Tour operators rely heavily on freelance guides. In a roll-up, there's pressure to standardize pay and conditions. But if you squeeze too hard, you lose the best guides — and the product suffers. The smart firms recognize that the guide is the product. Luna: So the success of these roll-ups will really come down to whether they can balance scale with authenticity. Lucas: That's the billion-dollar question. If they get it right, it could be a great business. If they get it wrong, they'll destroy the very thing that made the tours valuable. Luna: Well, it's a fascinating space. I'll be watching to see how Intrepid and the others perform over the next few years. Lucas: Me too. And we'll keep tracking it on the show. Thanks for listening, everyone. Until next time.