Opportunity in Adversity and the Flight to Quality
There’s no escaping it: hospitality has endured a bruising few years. Yet, despite the headwinds, hospitality deal doing is alive and kicking. Lenders are supportive – to a point – private equity continues to invest – selectively – and strategics are seeking to consolidate – balance sheets permitting. So, what’s going on?
First, the backdrop (brace yourselves…)
Persistent inflation. Rising labour costs. Overall margin pressure. Higher interest rates. Shifting consumer behaviour. Macroeconomic uncertainty. Adverse government policies. Hospitality has been hit from every angle. Some have labelled it a “perma-crisis” – and inevitably, these conditions have weighed heavily on investment and M&A activity. Deals are taking longer to close. Buyers are more cautious. Investors are increasingly picky. Businesses that only a few years ago would have commanded premium, double-digit multiples are now finding the market a lot tougher.
In deal doing terms, the environment is undeniably challenging.
But disruption doesn’t eliminate opportunity – it reshapes it.
What we’re witnessing is not a withdrawal of capital from hospitality, but a recalibration of it. Investors and lenders remain active, albeit with greater discipline, sharper focus, and a clear preference for business models that demonstrate resilience, scalability, and strong unit economics. For those willing to look beyond the headlines, this remains a market rich with opportunity. And the strongest operators, the best brands continue to attract capital and get deals done. The evidence is there for all to see, look at Ardent Pubs (formerly JKS Pubs), BAO, Cubitt House, Dishoom, Fairgame, Federal Café, Flat Iron, Pizza Pilgrims, WatchHouse, Wingstop and the Ivy to name a few. Granted, not at the multiples seen during the peak of the market. Those days are largely behind us – for now. But quality businesses with strong fundamentals, stand out brands, and credible growth stories continue to shine in an increasingly selective market.
This is not the disappearance of deal activity.
It is a flight to quality.
The Gap Between Good and Great Has Never Been Wider
The truth is, hospitality deal doing has become increasingly polarised. Average, “me-too” businesses with mediocre financial performance, or tired propositions are finding it difficult to generate meaningful interest. By contrast, best-in-class operators are telling a very different story. These businesses continue to attract buyers, and they typically share several characteristics:
- Strong and resilient unit economics, including 50%+ ROIs and 20%+ site EBITDA margins
- A compelling value for money experience, not necessarily low cost, but clearly understood by customers
- A coherent brand strategy, whether centred around a single brand, a portfolio of brands or a collection of individually branded venues
- Operational excellence across cost control, team culture and guest experience
- Die hard, loyal and repeat customers
- Scalable formats with genuine UK, and increasingly international rollout potential, supported by robust data and operational consistency
- A clear and demonstrable onward exit story… who is going to ultimately the acquire the business and why?
In short, investors are backing businesses that know exactly who they are and where they’re going. Fundamentals matter again – and frankly, that’s no bad thing. With supply likely to continue leaving the market through insolvencies, restructurings, and CVAs, the opportunity for standout operators is arguably improving.
A Market Reset, Not a Retreat
This is not a downturn in the traditional sense. It is a market reset. Valuations across hospitality have undeniably fallen from the highs of the cheap capital era. Risk is being priced differently. Debt is more expensive. Naturally, this has led to some lower multiples, often accompanied by greater investor downside protection through structured financial instruments. But repricing and structured deals does not mean the market is closed, just that it is working to a different set of parameters.
The Reappraisal of “Old Economy” Consumer Businesses
There is also a broader, maybe less obvious shift that is underway. For much of the last decade, investment capital flowed heavily into technology and software, while traditional consumer and bricks-and-mortar businesses fell out of favour. But the rapid rise of AI is beginning to reshape that dynamic. As barriers to software development fall and concerns around commoditisation grow, investors are revisiting their position on the merits of technology and software investing. At the same time, high-quality consumer businesses – particularly those with strong brands, loyal customers, and real-world experiences – are being viewed with renewed interest. Hospitality, when executed well, offers something difficult to replicate and difficult to automate: human connection, habitual consumer engagement and tangible brand experience. As a result, we are seeing investors revisit sectors previously labelled “old economy”. Not because hospitality is suddenly low risk – it isn’t – but because truly differentiated consumer businesses can offer something increasingly valuable in today’s market: real cash generation, pricing power, operational barriers to entry, and deeply embedded customer loyalty.
Looking Ahead
Hospitality has always been a cyclical industry, but periods like this have a way of separating businesses that are merely participating in the market from those genuinely shaping it. The current environment undoubtedly presents challenges. But it is also creating opportunities for disciplined, well-run operators to strengthen their position, gain market share, and attract high-quality capital. For investors, lenders, and operators alike, the message is increasingly clear: the market has not disappeared – it has evolved. Capital is still available, transactions are still happening, and growth stories are still being backed. But only for businesses that can demonstrate operational excellence, a strong brand proposition, financial resilience, and a clear vision. In many ways, this reset may prove healthy for the sector in the long term. Excess has been stripped out, fundamentals have returned to the forefront, and quality is being rewarded. The hospitality businesses that emerge strongest from this period will not necessarily be the biggest or the fastest-growing. They will be the ones with clarity of proposition, disciplined execution, and the ability to adapt in a rapidly evolving market. And for those businesses, opportunity remains firmly on the table.
