The most frustrating on-off deal of the latter part of last year was finally completed yesterday when the Thomas Cook Group bought lastminute.com's MedHotels for an undisclosed fee.
Rumours first circulated at The Travel Convention in Gran Canaria in October, when - in keeping with the annual ABTA shindig - cocktail-fuelled delegates started gossiping into the early hours of a deal to buy the bedbank.
Lastminute.com's press team on the ground running its tenth birthday party made valiant attempts to quash the titter tatter about Thomas Cook..
Executives from Medhotels looked visibly shaken whenever any of the press pack mentioned it - understandable given that there were dozens of staff back in the UK who had no idea of what was going on.
Almost on a weekly basis after the event there would be a new rumour along the lines of: "You know the Med deal is happening this week, right?
And then December arrived and, well, nobody buys an accommodation-only business for Christmas do they? A Wii Bedbank maybe?!
Anyway, with the deal now finally in place what else is there to say? Well, probably quite a lot, but here are some initial points:
* The consolidation in the bedbank continues apace, as predicted by anyone with a passing knowledge of how operators need to get hold of stock and how bedbanks need a wider distribution spread.
* Sources say the currently undisclosed deal is likely to be in the region of £20 million. Thomas Cook's previous bedbank acquisition, Hotels4u.com last February, was far more open and tabled at around £21.8 million.
* Observers will now turn their attention to TUI Travel, which if speculation is true, has been pipped by its arch rival twice in the space of a year. Does it need to be more aggressive with its buying?
* It is worth remembering that despite the high profile coverage in the trade media of the two most recent deals (a reflection on the personalities involved, one might argue), TUI has been quietly building a strong portfolio of accommodation-only providers of its own over the past few years - Hotelopia and Laterooms are decent businesses, lest we forget.
* It is no surprise at all that LowcostBeds has been quietly growing and most interestingly expanding in recent months, buying IdealCruising and recently its deal with Resorthoppa.
* Where does this all leave the trade media's omnipresent Youtravel.com and other, smaller bedbanks? Most insiders believe that Youtravel founder John Kent (who, ironically, created Medhotels before selling to lastminute.com) was looking at a three to four-year exit plan for the business. Is this still a likely scenario given how the market has developed and the economic climate?
* Finally and most importantly, it is believed by some - even rival bedbank bosses - that the latest deal will actually be good for everyone (except consumers, of course). Last year saw a pretty grim price war in the sector and some reckon rates were driven down by almost 40% - but this is unlikely to continue and prices could return to a more sustainable level. In other words: higher.
So while it is doubtful that the bedbank sector will ever be as sexy as the airline or hotel ends of the industry, it is certainly one of the most interesting, dynamic and, thankfully, provides us hacks with endless material to write about.
What do we all think?
Great post Kevin. Glad to see that I am not the only one interested by the bedbank market and its development across the UK.
Now about the acquisition by Thomas Cook. I am bit surprised by the valuation of the deal. £20M seems quite low. Remember that LSMN bought MedHotels in December 2003 for £16M. It would mean LSMN and their parent company Sabre Holdings has only achieved a £4M premium after 5 years. Not great.
It looks to me that LSMN could not really see how to grow this business forward (maybe because it is B2B, not their core competency). This sounds similar to the story of Kelkoo and Yahoo where Yahoo didn't know what to do with Kelkoo to grow revenue forward and eventually sold it at a loss...
The bedbank model was developed through the innovation that John Kent applied in Medhotels and later at youtravel.com and they can only deliver value if they operate through enterpreneurial management in a very dynamic environment
The synergies that will offer to Tour Operators is through bringing more flexibility in the package development and the depackaging of the package and through dynamic packaging
I guess that independent bedbanks like youtravel.com will always have the edge - as these organisations will find difficult to operate within the constraints of large organisations
Professor Dimitrios Buhalis
Bournemouth University
Well done Kevin ,great post !
Just a correction on Guillaume
comment ,lastminute.com paid over £23m for medhotels.com in 2003 ,the £16m was only the initial consideration of the deal.
With regards to Kevin’s comment on our exit plan I believe that whilst the economic climate is clearly quite bleak in general just now there is clear historical evidence that holidays are one of the last things in the family budget to be cut. Also the predictions are that the pound will strengthen against the euro which will also be beneficial from todays position. Given the economies of scale that youtravel.com has achieved after last years growth of nearly 100% and the fact that agencies will likely spread their business further due to not wanting all their eggs in the Thomas Cook basket, I and our major shareholder Barclays , remain confident in this business and for a successful exit in the original timeframe.
Guys....I'm afraid that You Travel are being very nieve in assuming that agents will switch away from Medhotels and H4U just because they are owned by Thomas Cook. This will undoubtedly worry them on a strategic basis but at the end of the day sales will remain dictated by who has the best quality, price and customer service.
You Travel have continously lost money over the last 3 years to try and buy market share but remain in 3rd place behind Holiday Brokers who are now the largest independent bed bank. I would argue therefore our service ethos is and remains crucial to the succes of bed banks.
Steve Endacott.
I don't normally talk about our company position on blogs but felt a couple of comments were more than warranted on this occasion. First of all I think companies would be better to run their own business than make inaccurate and misleading comments about competition such as those above.
Youtravel.com has only been trading for 2 years and only filed accounts for its first year so far. No-one outside the company could legitimately have any sight of our numbers. As it happened we almost doubled turnover in year 2 and our final accounts will reflect substantial improvement. Based on their published figures on Oct 14th 2008 I do not see how the claim that Holiday Brokers is the largest independent bed bank can possibly stand real scrutiny. By their own admission they are only making a small profit after 5 years of trading - are they getting desperate?
Graham Nichols
Group Managing Director
Youtravel.com
Good debate.
Please be careful with ANY inaccurate comments.
"Observers" "turning their sights to Tui" to work out why they are not pursuing an "aggressive" buying strategy should probably look back at their announcement towards the end of last year that they will not be making any acquisitions in the current economic climate.
And surely any industry hacks would have been aware of "rumours" of the Medhotels buyout well before the ABTA Travel Convention in October. Discussions were well advanced by then having been initially prompted by the Thomas Cook purchase of Hotels4u as far back as February.
"Bernie":
Clearly having a pop at the hack is even more interesting than the debate itself.
Always happy to be corrected - if I warrant it.
Typically and rather ashamedly you have decided to hide behind an anonymous email address.
But slightly daft of you to forget that your IP address can be found quite easily and points to a publishing company based on the South Bank in London which has travel trade magazine in its portfolio.
And I don't mean IPC.
We are always happy to be open in debates. It's a shame you're not.
Poor...
[Sorry everyone else - off-topic]
It's a sackable offence to be caught contributing to a rival site's visitor numbers and page impressions. D-0h, I'm so daft I've just done it again!
@ Bernie Remember that Kevin in a true investigator, he will find you :-)
Seriously, it would be great to have the view of Paul Evans from LowCostBeds and other bedbanks like AlphaRooms, HotelConnect or Chase Travel.
Guillaume: I'll email a few of them to see if they want to contribute. Given the comments above from Nichols and Endacott, I suspect they may want to steer clear!
Bernie: You should be careful, then. Concentrate on your own traffic figures.
you guys are all funny
i thought it was a good article - stimulating and perceptive.
the chat since then less so.
tui have hotelbeds- bigger than all the companies mentioned put together and truly global . late rooms does not buy from the same inventory as paid by customers credit cards- as hotels like to keep the rate structure seperate.
thomas cook have some way to go to get hotels4u, medhotels whatever anywhere near as big as hotelbeds on a european scale let alone global
Anyway about size- testosterone flowing- post our acquisitions i think you will find we are now by some measure the largest independant business. but you know what - who cares- not me.
its is about the quality of the business, not scale, and i am happy that a multichannel model is much much better than a trade only facing bedbank. i would not like to be in that space alone- and we are not .
bst rgds paul evans
Dear all
When we first launched Travolution (as a blog originally...) it was to provoke just such conversations as this.
I always think the best blogs resemble animated conversations you overhear in a pub/bar.....to have such contributors as those above is very gratifying...thank you all.
Welcome to Travolution...we remain, as always, a free house.
Interesting debate - but I am missing one point from a German perspective, where Lastminute.com told all the agents (and the press) their future lies - with the help of MedHotels - in dynamic packaging. And why are they selling their bedbank at a time when every other OTA builds up an own dynamic packaging? Or do they get such a wonderful deal to use all the Thomas Cook products in future?
Kind regards from Hamburg, Klaus Hildebrandt (fvw)