George Makripidis - Partner, Corporate Finance, PwC Greece



The hospitality sector in Greece, a key contributor to the country’s gross domestic output, experienced healthy growth during the years before Covid-19. Landmark infrastructure investments took place including the long overdue completion of five backbone motorways, the upgrade of fourteen regional airports and Athens’ International Airport, the award of concession contracts for marinas and ports and the creation of new piers in key ports of the country.

The hotel industry followed suit with significant investments towards the upper end of the offering. The capacity of five and four star hotel units cumulatively increased by 23% and 12% respectively during 2017-2019, while single digit growth was experienced in the three star offering and a contraction in the lower end of the quality spectrum.

Greece was on an investment path, attracting more interest from international investors as the perception of risk for the country was normalizing, depicted also in record low yields for sovereign debt.

Valuation levels evidenced in transactions in the hospitality sector during the last decade, in terms of multipliers offered applied to the assets’ profitability, were never shy compared to European or Global averages. The sector was considered relatively immune to the sovereign crisis, albeit disposable income contraction had taken its toll to the fundamentals of the businesses, leading to lower valuations as a result of applying the same international multipliers to smaller cash flow generation.

During the three years before Covid-19, the
bid started approaching the ask in transaction lingo. Occupancy rates increased, the offering became more premium, generating better margins, infrastructure investments enhanced expectations for even better future profitability and as a result, the multiplier was applied to a larger number, generating more exit proceeds to sellers. More transactions started taking place.

Then Covid-19 struck and the bid started moving away from the ask again. With air traffic down by in excess of 70%, occupancy rates in their mid twenties and tourist receipts down by almost 80% in 2020, it is easily understood that the fundamentals were massively hit. The expectation for 2021 is not rosy either with vaccination delays shifting hopes for recovery signs towards the second half of the year.

Many M&A discussions were impacted by the deterioration of fundamentals. Buyers sought to take advantage of the situation and pay less, arguably since future cash flows would be less. Sellers took the view that this is a pause and one needs to exclude it from the calculations, demanding pre Covid-19 numbers.

Theory suggests that the value of an asset should be equal to the value of its future cash flows translated in today’s money. So the crucial question is when will we see 2019 fundamentals again. Consensus suggests anything between 2-3 years lag. Buyer’s that accepted the “pause approach” and only demanded time value of money discounts to pre Covid-19 levels for the expected time lag, are the ones that transacted while sellers that accepted a discount since today’s money is not equal to tomorrow’s money, were the ones that attracted bids. Materially less transactions took place during 2020 and the main trades were either distressed sales or the exit of financial institutions from a debt exposure.

So what do we need to do to create the circumstances that bring the bid and the ask back to equilibrium in order to attract investors and create a healthy vendors’ environment.In the history of economic theory, wheel reinvention was never progress. The recipe that worked after the sovereign crisis, with large infrastructure projects contracted to the private sector and continuous upgrade of the hospitality offering towards the upper end of the spectrum will fuel future growth and generate investor demand again. If those two components can be topped up by a stable and solid legislative environment that provides certainty and rarely changes, we can rest assured that the bid will outweigh the ask, transactions will take place at higher prices and Greece will import know how and further enhance the most important product it is known for.

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