[M&A Insights] Hanatour Amid 'Sale Rumors,' Will It Find a New Owner as Industry Conditions Improve?

Korea's No.1 Travel Platform Hana Tour
Market Cap 10 Trillion Won... "Daesang Stake Value Up 300 Billion Won"

5.28 million. This is the number of South Koreans who traveled abroad from January to February this year. It is close to the 5.5 million recorded in 2019, just before the COVID-19 pandemic. The tourism industry expects the number of overseas travelers this year to recover to pre-pandemic levels.

Amid this recovery trend, news has emerged that Hana Tour, the leading domestic travel platform, is up for sale in the mergers and acquisitions (M&A) market. Recently, IMM Private Equity (IMM PE), the largest shareholder and a private equity firm, has been proceeding with the selection process of an advisory firm for the sale of Hana Tour, targeting major investment banks. On the 29th, M&A Insights discussed how Hana Tour’s valuation might be assessed in the market and how the travel industry could be reshaped after the sale.

The industry shaken by COVID-19... Hana Tour returns to profitability after 4 years

Hana Tour was launched in 1993 under the name Gukjin Travel Agency. Three years later, it changed its name to the current one. Since ranking first in overseas travel packages and airline ticket sales in 1998, it has maintained its leading position in the industry. According to statistics released last year on its 30th anniversary, Hana Tour’s cumulative number of users reached 47 million. This means 9 out of 10 Koreans have used Hana Tour. From 2010 to 2019, the number of outbound travelers increased by an average of 10% annually, reflecting the overall growth of the travel industry.

However, the COVID-19 pandemic, which shook the entire travel industry in 2020, arrived. Along with social distancing measures, Hana Tour’s sales plummeted by 82% in 2020, resulting in a deficit of over 100 billion KRW. For IMM PE, which invested about 140 billion KRW to acquire Hana Tour shares, becoming the largest shareholder came with a major challenge.

IMM PE overcame the crisis through intensive structural reforms. To improve financial structure and secure cash liquidity, it sold some subsidiaries such as hotels and duty-free shops and reduced the number of employees from 2,500 to 1,200 through restructuring. Last year, Hana Tour’s sales surged nearly threefold to 411.6 billion KRW compared to the previous year, and operating profit turned positive at 34 billion KRW. The number of overseas package travelers sent out in January and February this year also doubled compared to the same period last year. This is the highest performance since the COVID-19 pandemic.

"Due to high interest rates and other factors, a quick sale seems difficult"

Meanwhile, it is known that IMM PE plans to put Hana Tour’s management rights on the market after four years of acquisition. Currently, IMM PE holds 16.68% of Hana Tour shares through a special purpose company called 'Harmonia No.1' LLC. When combined with shares held by related parties such as Chairman Park Sang-hwan and co-founder Vice Chairman Kwon Hee-seok, the total shareholding exceeds 27%. In response to the sale rumors, a Hana Tour official stated in a disclosure at the end of last month, "As the travel market recovers and company performance improves, we are considering various strategic options including share sales," adding, "The plan will be decided through consultations between IMM and the second-largest existing shareholders, and no specific details have been finalized yet."

If the sale of Hana Tour materializes, it will inevitably trigger a major shake-up in the travel industry. It is expected that not only large domestic and foreign private equity firms but also online travel agencies (OTAs), which have been competitors to travel agencies, may participate in the bidding. OTAs have long competed with travel agencies by offering package products that bundle flights, accommodations, and admission tickets. Researcher Lim Su-jin of Daishin Securities said, "Before COVID-19, most package products were low-priced, with a sales conversion rate of about 14-16%. After COVID-19, the sales proportion of premium package products such as Hana Tour 2.0 and Modu Signature by Modu Tour has significantly increased," adding, "This reflects a shift toward valuing travel quality as the number of trips increases. The sales conversion rate of premium package products is about 25%, making them high-margin products."

Competition with OTAs often leads to reduced profitability for travel agencies, but recently, the relationship between the two sides has rapidly improved through share acquisitions and memorandums of understanding (MOUs). Yanolja, a strong OTA player, has already become the second-largest shareholder of Modu Tour, showing interest in travel agencies.

The valuation of the shares rumored to be for sale is expected to exceed 300 billion KRW. The recent market capitalization is around 1 trillion KRW, so the market value of the 27.7% stake for sale is about 300 billion KRW. Adding a control premium could result in a higher price.

However, due to prolonged high interest rates and other factors, it is expected to take some time before the M&A deal is finalized. Researcher Lee Jun-gyu of Bookook Securities said, "Although the stock price dropped sharply after the possibility of the major shareholder’s share sale was raised, it is difficult to find buyers for acquisition negotiations in the current economic environment of high inflation and high interest rates," adding, "Considering the acquisition price and control premium of the major shareholder, even if negotiations proceed, the likelihood of completion is a separate issue. The possibility of a quick sale is low."