Private equity steps up push into UK holiday parks

Never has Huw Pendleton known such interest in Celtic Holiday Parks. In the two decades since the Welshman launched his business, two or three potential buyers might contact him each year but in the past six months alone he has been approached by more than twice that number.

Celtic, whose three sites in Pembrokeshire host static caravans and wooden lodges, is an appealing investment for international financiers, often managing multibillion-dollar funds, who are increasingly keen to buy into Britain’s domestic holiday market. The business owns the freeholds for its sites and has planning permission to add 100 pitches to its existing 520.

“The potential adaptability of the park business does mean that it’s a very attractive proposition for finance houses that have cottoned on to the industry of late,” Pendleton said.

The UK’s holiday park sector, sometimes considered the poor cousin of the foreign holiday given its lower cost and the country’s capricious weather, has enjoyed its hottest year yet for deals, operators and agents say.

Private equity groups are piling in, having spotted an opportunity to merge small and relatively cheap-to-acquire sites into larger businesses, adding debt to their balance sheets and sometimes selling off their freeholds in the process.

Blackstone paid roughly £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 snapped up Aria Resorts and this month Coppergreen Leisure to combine with it.

US real estate investment trust Sun Communities paid $1.3bn for Park Holidays in November and indicated further deals, pointing to a “significant external growth opportunity” in the “highly fragmented UK market”.

Possible targets include Parkdean Resorts and Park Leisure, which are up for sale, with the latter likely to fetch more than £175m according to a person involved in the negotiations.

Independent owners are selling at record valuations. Simon Altham, chief commercial officer for holiday rentals company Awaze, said that each 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 have been trading 20 to 30 per cent above what they might have fetched in 2019.

“We are seeing premiums and multiplies being achieved in the past 12 months that we have not ever seen before,” said Chris Sweeney, director in Savills’ leisure team. “It’s a perfect storm . . . You’ve got existing operators who are looking to expand and new players in the market like private equity who can see good investment and exit.”

The UK, where planning laws are favourable, is home to roughly 6,000 holiday parks, according to Savills, generating about £9.3bn in visitor spending before the pandemic, research by the UK Caravan and Camping Alliance shows.

Some are specifically targeted at caravans while others offer accommodation from multi-room lodges to shepherd’s huts. Groups of more than 10 parks make up 7 per cent of the industry, Savills said. Much of the rest comprises independent owners of one or two sites, making the sector ripe for consolidation.

The pandemic “has shaken a bunch of family owners from their slumber”, a person who has worked on multiple park deals said. “They’ve been saying for 30 or 40 years they don’t want to sell and now they’re thinking, if it wasn’t for that [state-backed loan] I would’ve gone bust.”

Holiday parks offer easy gains. They are easy to refurbish, allowing operators to hike prices by adding plusher accommodation, hot tubs, plasma screens and WiFi.

In a time of uncertainty and rising inflation, parks are also less buffeted by travel restrictions and economic pressure. “If the economy is going great, people add a holiday in the UK. If the economy is slightly challenged then people take a holiday at home rather than abroad,” said Awaze’s Altham.

Parks also lend themselves well to financial engineering. Smaller sites or groups can often be bought for a lower multiple of their earnings than a bigger company, so buyout groups hope to pocket the difference and achieve economies of scale by rolling a number of sites together. Local businesses such as vet practices and dental surgeries have been consolidated in a similar way.

Parks’ freeholds can also be sold and rented back, boosting owners’ returns and bringing in cash in the short term, while tying businesses into paying rent for decades. Since 2017 Parkdean, Park Holidays, Park Leisure and Away Resorts have sold freeholds to outside investors, company filings show.

Typically such deals are done either before a buyout group sells a company “as a way of crystallising the value”, or by an incoming private equity owner as a way of paying towards the acquisition itself, said Tom King, head of UK hospitality investment properties at real estate consultancy CBRE.

Buyout groups have had mixed success in the sector. Caledonia Investments said it almost trebled its money on Park Holidays, which it owned from 2013 to 2016. That equates to a 39 per cent annual return, according to Peter Morris, associate scholar at the University of Oxford’s Saïd Business School, who analyses private equity buyouts.

But those that invested in the run-up to the 2008 crisis fared worse.

The San Francisco-based firm GI Partners bought Park Resorts for £440m in 2007 but handed control to UK-based Electra Private Equity five years later via a debt restructuring, after Electra spent £70m buying its debt. GI declined to comment.

CBPE Capital’s return on Away Resorts, which it owned between 2008 and 2015, was about 7 per cent a year, slightly worse than the FTSE 250 index in the same period, Morris’s analysis shows. CBPE declined to comment.

And while park owners are reporting record bookings for 2022, some fear the boom may not last.

“Private equity firms and especially their lenders like to say that UK holiday parks are recession-resistant,” Morris said. “Actually, investing in holiday parks is mostly about the same two things as every other property-based investment — location and timing.”

But in Pembrokeshire, on Wales’ south-western tip, Pendleton is feeling confident, having spent £2.6m upgrading his sites — more than five times his usual annual development budget — while they were empty during lockdowns. The “many different income streams” available, such as caravan hire and restaurant sales, can help the parks sector weather turbulent times, he said.

Despite Covid causing “a real rollercoaster” emotionally, Pendleton said he was still “too young” at 50 to sell up and retire. But he quickly added: “You don’t want to miss the boat.”