Fast growing online holiday firm flexes its muscles with £20m acquisition

Fast growing online holiday firm On The Beach has announced the £20m acquisition of Classic Collection Holidays.

Its subsidiary, On The Beach Travel, has completed the deal for the Worthing-based firm which reported EBITDA of £2.6m and gross assets of £18m in its latest accounts for the year to Ocrober 31, 2017.

The firm believes the acquisition will be earnings enhancing in the first full year of ownership, including some initial investment from On The Beach.

Last month announced On The Beach announced its relocation from Cheadle to state of the art office in Manchester city centre, leading to the creation of 200 new jobs.

Classic Collection dynamically packages luxury beach holidays and sells its packages through a network of third party offline travel agencies, including independent high street agents and homeworkers.

It employs 124 staff in its Worthing headquarters, who will continue to manage the relationships with travel agents.

The acquisition represents a continuation of On The Beach’s strategy, while leveraging the group’s capabilities to access five million short haul beach holidays that each year are booked offline.

The group will invest to grow Classic Collection’s portfolio of luxury holidays.

Separately, the group will support Classic to invest in, build and launch an online booking portal to provide travel agents with access to a portfolio of mainstream beach holiday product under a new brand ‘Classic Online’, using On The Beach’s technology capability, product sourcing and scale in the short haul beach market.

Classic Online will be available exclusively through travel agents and will not be a consumer site.

The £20m acquisition will be made up of £14.6m in cash on completion, £2.7m cash, which will be deferred for 12 months post completion, and £2.7m in shares.

Classic Collection is currently owned by its managing director, Nick Munday, its directors and a number of small private shareholders.

The cash consideration will be funded from the group’s existing cash resources and bank facilities.

The On The Beach board confirmed that this transaction will not impact the group’s ability to pay dividends in line with its stated policy.

Classic Collection’s existing management team, headed by Nick Munday, will continue to run the business and help deliver the joint vision for Classic Collection’s future.

Nick Munday said: “I am thrilled to be joining forces with Simon and the team at On the Beach.

“Partnering with such an innovative market leader will give our loyal network of agents access to an even wider portfolio of mainstream beach holiday product through the launch of Classic Online, together with further investment to broaden the luxury offering of Classic Collection.”

On The Beach chief executive Simon Cooper said: “We are pleased to welcome Nick and the Classic Collection team into the On The Beach family.

“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.”

Separately today, On The Beach released a trading update for the 19 weeks from April 1, to August 15.

It said, as has been widely publicised, the exceptionally hot UK weather that has been prevalent over recent months, combined with the football World Cup, has supressed holiday demand.

This has impacted the group’s headline revenue growth during the period, but the weaker demand has driven a significant reduction in the group’s marketing spend, ensuring growth in revenue after marketing costs has remained strong.

The statement said: “This is further testament to On The Beach’s resilient and flexible business model as we have previously demonstrated in similar circumstances.

“Whilst August and September are important trading months for the group, the board continues to expect that adjusted profit before tax for the financial year will be broadly in line with management expectations.”

Simon Cooper said: “With regards recent trading, the resilient, flexible and asset-light nature of On The Beach’s business model, combined with our advanced technology, has allowed the business to swiftly adapt to the unprecedented three month heatwave and deliver an impressive performance.”

Russ Mould, investment director at Manchester investment platform AJ Bell, said: “Sometimes the market is genuinely efficient.

“Shares in online beach holidays specialist On The Beach had been weak in the run-up to today’s trading update amid a perception the World Cup and UK heatwave would have negatively impacted demand.

“This has proved to be the case.

“Flagging pressure on headline revenue and guiding for profit to be ‘broadly’ in line with expectations, the company has essentially delivered a mild profit warning.

“And it sounds like even achieving this level of performance is dependent on a recovery in August and September.

“However, investors have reacted positively, perhaps noting that, unlike rivals with large numbers of high street outlets, On The Beach can rapidly respond to fluctuating demand by scaling back on marketing spend, which is one of its largest costs.

“The company has also announced the £20m acquisition of Classic Collection Holidays. OnTheBeach will hope to leverage its online knowhow to boost returns from what is currently an offline high-end operator selling packages through third parties.”