Five minutes with: Luke Johnson

Risk Capital’s Luke Johnson talks to PEI about the leisure and hospitality market and his expectations for 2014.  

How does deal flow in the UK look for Risk Capital?  

“[It’s looking] better. I think M&A inevitably rises as confidence returns – which it has. General business optimism increases so I think appetite to invest does so too. Prices are depending on the deal size and the sector [but] generally asset prices have risen because stock markets have risen. Asset prices go up and down and you have to factor that in. But we generally invest in businesses that we think we can grow substantially, so if the multiple rises or falls a little it shouldn’t make much difference to us.

You recently backed UK holiday business Neilson. Is it risky to invest in a business so reliant on consumer spending?  

We believe it is a measured risk. We think Neilson is attractive because it is in active holidays like sailing and skiing. This is a segment that has proved very resilient despite the downturn. Secondly, the overall holiday market in the UK has fallen from its peak in value terms in 2007 and 2008 by about 20 percent. We think there will be some recovery in the next year or two because of the [improving] economy. I suspect the economy will grow by 3 percent next year in the UK, so big ticket items will benefit disproportionally from that economic recovery.

How did the deal come about and what are your plans for the business?  

[We bought] it for £9.15 million. It was a mini-auction over the summer where they talked to some other people, but we have had it in exclusivity for some months. [Earlier this year we also bought] We are biased towards leisure and hospitality and that’s where those two businesses fit. We will increase the number over time of beach clubs – which is the most successful part of [Neilson] and we are going to do a bit of reorganisation on the skiing side because we think there’s more added value there.  It exclusively caters to UK citizens; we might expand it to overseas customers — but that’s a big leap — that’s not immediate.

What is your outlook for the economic environment in the UK in 2014?  

We are confident it will be a good year for the UK economy, a good year for doing deals and a good year for exiting. I am looking forward to it.

Any plans for raising a new fund?  

Not much. We will be focusing entirely on investing the fund we have and making sure the investments we currently own like Neilson perform. Post Neilson, [our fund is] about two-thirds invested. One more deal would take us [to the 75 percent mark].