Quadrant Private Equity cruises into $300m Australian tourism play

15/11/2016 News

Quadrant Private Equity has made a $300 million bet on the Australian tourism industry, buying three "experiential tourism" companies to create the Experience Australia Group. 
Quadrant started with The Ghan and Indian Pacific owner Great Southern Rail, and has now added Cruise Whitsundays – the biggest ferry and cruise operator in North Queensland carrying about 700,000 passengers a year – and Perth-based Rottnest Express, which ferries passengers to Rottnest Island and runs bus tours, cycling adventures and the like.

Quadrant managing partner Marcus Darville said what started as an exercise in seeking to pick a replacement for Australia's mining boom ended in a three-way bet worth $300 million and with the potential for more bolt-on deals.

"With the resources boom having slowed, we started looking at what industries were going to supplant that – tourism was one of them," Mr Darville, who will also chair Experience Australia Group, told The Australian Financial Review in an exclusive interview on Tuesday. 

"Currency is coming back to more normal levels, there's also an internal focus from some governments such as Western Australia on tourism and there's the grey nomad factor.

Iconic targets

"Within tourism, we pinpointed a growing demand for experiential travel, and started looking for companies with a strong position in an iconic Australian destination and like-minded vendors who want to be part of a larger group." 

Chris Tallent, a former boss of GPT Group-owned Voyager and current CEO of Great Southern Rail, will run Experience Australia Group as chief executive.

Mr Tallent said Great Southern Rail, under the ownership of rival private equity investor Allegro Funds and now Quadrant, had transformed The Ghan and Indian Pacific businesses from transport businesses to experiential travel providers, where passengers get on and off the trains and to enjoy sophisticated "experiences" such as meals under the stars in the Nullarbor. 

"People are both loving it and willing to pay a premium for that service," Mr Tallent said.

"It is doing really well; customers are satisfied and we see that in terms of net promoter scores and satisfaction survey results we are getting out of those experiences." 

Investment thesis

Quadrant investment director Simon Pither said Experience Australia Group was seeking to add other experiential businesses to the group.

A key part of the investment thesis is that each business must be successful on its own, which should be amplified by cross-selling opportunities and other synergies, and have a strong presence in its specific market. 

"There is growing demand for experiential travel and supply is constrained," Mr Pither said.

"Australia scores very highly in experiential travel. Australia has some amazing iconic destinations but they are under-invested in compared to the United States and Europe – that is what the group as a whole will be trying to change."

Experience Australia Group starts life with an estimated $200 million a year in revenue and a $300 million valuation, including debt. 

Quadrant owns a majority stake in the company although other shareholders include management, two Cruise Whitsundays investors, Great Southern Rail-backer Allegro and Rottnest Express owners, the Bailey family. 

The private equity manager is expected to target the company towards an initial public offering in the coming three years. Listed equities investors would be expected to compare it to small cap darling Sealink Travel Group, which has traded steadily since its ASX debut in late 2013. 

(First published in The Australian Financial Review, 15 November 2016)

Writen by Global Administrator, 28/11/2016 News