At a certain point in the negotiation, the seller should require the buyer to prove they can pay for the business. It is a two way street regarding info exchange. Knowing exactly when to doubt the buyers ability is a skill Innovative Travel Acquisition consultants have learned over the past 20 years.
Our research indicates that it is not a good idea to talk about pricing as well as tell a potential buyer that you have other interested buyers, at your first initial meeting. The rationale behind that would be that the synergy (business relationship) created thus far could easily and instantly turn them off due to the bidding war implications. It shows them that you may not necessarily be attentive to their concerns or needs. Focus on the buyer, listen carefully to their short term goals with their long term in mind and how your business would be a great fit, educate them the importance of your business and that will automatically “advance” your agenda hence sell your “business” That would make business sense because it will nurture and keep a positive and long-term “relationship”. It’s a win-win situation across the board. If and when it gets tricky and complex, your Innovative Travel Acquisition business consultant can handle the negotiations an assist you and the buyer to agree in principle on any sticky issues that might stall the progress.
Innovative Travel Acquisitions Inc has serviced only the travel industry since 1991. Since our inception, we have had over 520 closing transactions. If you have any travel business acquisition questions, please contact us at 1800-619-0185 or visit our website at www.tvlacq.com
I hope you all are well. In case you missed it we are sharing with you an article entitled “A Bridge Over Troubled Waters†from the June 29th edition of Travel Weekly written by an agency owner Charlie Funk, out of Nashville, Tennessee.
Our firm is helping many wise owners of travel agencies all across the country by structuring acquisitions This Relieves the seller of ownership responsibility and frees them to continue in the business while eliminating the stresses of ownership. Right now it is clear that certain suppliers wish to reduce the number of agencies they do business with. Back in the early 90’s, independent office supply companies and pharmacies virtually vanished in a very short time. The owners who sold to competitors early in these two consolidations did very well. Travel agency owners who sell now verses slowly fading away will be happy they shifted the burden of ownership while still being able to do what they love.
ITA has sold 520 travel businesses since our inception in 1991 and not once have we heard from our seller that they regretted their decision to sell. The opposite is true as too many times we hear, “I would of; I should of; I could have sold when I had that offer a few years ago.†The presidents of American and Delta airlines have both publicly stated that they will in the future charge agencies for the right to distribute their product. Cruise lines, hotels and car rental agencies will be considering the same scheme if the airlines can get away with applying more costs to agencies. Unfortunately, our industry of retail travel is set up that certain suppliers are your toughest competitors. Now would be a good time for lots of agency owners to be in serious negotiations about selling in the near term as we watch margin erosion continue.
Time is of the essence, as we are facing an uphill battle that is getting tougher daily. The current economic conditions are forcing agency owners to make critical decisions in the near term. The reality is that many agency owners should be exploring selling their business sooner verses later. My firm is here to help you, your clients and your agents by finding the right, solid match for your agency. We have hundreds of reference letters available for your review. We are also proud members of ASTA and NTA. We look forward to helping you any way necessary.
Please contact us soon!
Bob Sweeney
President ITA
So often in the merger and acquisitions arena we hear from owners when asked if they would consider selling “sell now? I am not ready,” or “I am going to hold out and hope for the best”. I know the positive mentality of the entrepreneurs out there the always conquer never fail we can succeed that has made small business great. I love those people and the energy they carry around with them but, there comes a time when you must play the hand that’s dealt. More often today when I talk to the very people who would say the same things above, are now saying “I should have sold” or “I am ready to get out” not a year down the road. I call it the Yahoo factor.
The yahoo factor. When Microsoft made their final offer for $47.5 billion or $33 dollars a share yahoo played games and refused to sell, as of today there stock price sits at $17.42 a share. Ask any of the still standing board members if they should have sold. That’s what I call the yahoo factor.
Given the climate of today’s market we need to, as business owners, seriously assess the realistic terms of our current and near future. I was told once when it comes to a big business decision think about how it will affect my business 12 weeks 12 months and 12 years from now based on a realistic assessment of my current financial standings. I am not saying that every offer on the table is the wise decision but look at it based on a clear assessment of your current financials. So often we get our hearts tied into the business and we allow the passion and pain to persuade our judgment. When we finally take off the rose colored glasses we are met with a sense doom followed by a time to get off the ride reaction. Unfortunately selling a business is not like selling the house or the car. The strongest thing that you own, your report card so to speak is your financials. Buyers will give you a pass or fail based on those numbers. Pass you make a wise financial transaction that allows you to make more money over the next couple years than if you would have if you continued to own the business. Fail you waited too long and now the business isn’t very interesting to active buyers.
If it’s sunny now but there are storm clouds on the horizon get the umbrella out is what I am saying. Any buyer will look at your financials and projected growth for your company. The buyer will pay based on the risk and the reward of his investment. He has to be able to see both of those for him to justify the acquisition of your travel business.
We have slogged through the end of 2008 and the first half of 2009 and where are we? Thankfully there is better news on the horizon. Our office has seen and heard a positive outlook from the current owners about the future of their business. Buyer activity has slowly increased compared to this time last year.
There is a great deal to be excited about. We can see the bottom which means the only place to go from here is up. We may not shoot up like a bottle rocket, but we can see a level market that could turn into some positive growth in 2010. It may not be a “V†recovery but steady and flat means no loss and no loss is a first since late 2008. Market recovery means money flowing, money from clients wanting to travel and banks willing to make business loans to support the small business owner all this means liquidity after several quarters in a cold freeze.
How can we make the best of this situation? Imagine the possibilities that you can reap as a business owner if you take the time now and setup your operation for the recovery of the market. Companies who make strategic moves now can look at a greater return when the market comes back full force.
Americans in general think it is there right to travel. They have the right to go and relax and take their two weeks off a year. Image when the spending public is ready to release the stress of not traveling in the last year and half. Americans are going to travel and travel they will in full force. It could be a explosive 2010-2011 time for our industry.
In a business sense success can come from any direction or in various forms but as business owners we need to be looking for it when that time comes. The times are a changing, as such so must we. Markets have shifted in the travel world. Like everything else what was a seller’s market has become a buyers dream. With that in mind here are three secrets to a successful business transaction for today’s merger and acquisition market.
Seller Financing - From the sellers standpoint one of the greatest ways to facilitate a merger or acquisition is to explore the option of seller financing. With banks lending to business in a current freeze this option is one of the best ways to help a transaction move forward.
Real world pricing - On both sides of the table buyers and sellers need to understand when asking or receiving offers think about the times we are living in. No longer can the sellers bang fists on the table. We have moved to a buyer’s market accepting that and working the negotiations with a qualified industry specific broker can still leave a fair and lucrative offer for everyone at the table and smiles all around.
Flexible Negotiations - Being Flexible in the negotiation process allows you to maintain forward momentum during and after the transition process. Working with an industry specific broker allows you a margin of safety putting the industry knowledge and years of experience in your corner using benchmarks and comps allowing you to know the deal you are getting is really a deal at all.
Remember the risk of selling too early pales in comparison to the risk of selling too late!
Throughout my brokering career both on Wall Street and running ITA the one constant is that my clients have been motivated by either fear or greed, never both. Depending on your personality you will fit into one category or the other. The sale of your business will trigger some emotions. The key is to limit the amount of emotion so that you can make clear headed business decisions.
Get your head out of your hearts and view the sale as a victory not a defeat. Too many business owners simply go out of business instead of selling what they have built. It is more honorable and fair to your clients and employees to plan an organized sale verses simply not trying to complete an acquisition. There is nothing more satisfying than engineering a win win merger of a travel or tour business and watching the synergies present themselves between serious buyers and sellers. Here are some of the reasons folks sell:
1. Age
2. Sickness/Health
3. Birth
4. Death
5. Spouse Transfer
6. Marriage
7. Divorce
8. Accident
9. Inheritance
10. Burnout
11. No Longer Competitive
12. Family Time
13. To take the business to the next level
The Key is to always keep an open mind when you are approached by a travel or tour business broker with an honest buyer wanting to acquire your business. A nice calm calculated approach is needed verses taking things personally during the negotiation. Never once have we experienced a client that regretted selling their business. We constantly hear ” I could of, I would of, I should of sold a couple of years ago to that buyer you presented.
-Bob-
Sell it, merge it, but don’t just shut your agency down. This is the advice of Bob Sweeney, president of Innovative Travel Acquisitions, Inc., (ITA), travel agency broker. With over 507 deals behind him since 1991, Sweeney believes that agency owners have an obligation to staffs, clients and suppliers to sell or merge their agency- not to just shut down. “Every agency has value and owners should consider options,” he said. “It makes economic sense.”
In an interview with Travel Agent, Sweeney said that there are a lot of people involved in a closing, including customers, long service agents, outside agents (if the agency hosts), suppliers and even the community. Not least in importance is the owner and their family who can benefit from a buyout as opposed to a closing. Sweeney and his professional staff handle from 24 to 36 deals a year and he expects 2009 to be on the high end of the transaction scale. This includes multi-million dollar agencies.
Sweeney expects to announce by the end of the year a $30 million agency acquisition and reports four recent closings- all four over $20 million in volume. This includes: Travel Syndicate of California, acquired by a buyer outside the industry; Piedmont Travel of South Carolina, acquired by CWT of Minneapolis; Travel Time, Inc. of Nashville, TN also acquired by CWT of Minneapolis; and Travel America Vacations of British Columbia, Canada, acquired by HIG Private Equity, a Florida-based firm.
Despite the current economic downturn, Sweeney sees opportunities for buyers and sellers. Buyers will seek to expand market share and position themselves for a recovery, acquire talent or to open market niches. Sellers often are blind to the value of their client base or location or specialties. There is lot of owner pride involved in an agency’s sale that can be a liability, especially agencies that have been in a family for generations, according to Sweeney. Other deal breakers include not using a skilled broker, an attorney or accountant who is familiar with the travel industry.
No transaction is without risks, Sweeney warns, especially in a volatile economy. But merging agents can share risks and take advantage of the synergies and economies of scale. Agency owners are also aging, he notes, and should plan ahead to insure continuity. He also warns that there is no fixed formula or a scale or purchase and that “each transaction is unique.”
Once a valid rule of thumb was that a small agency was worth about 33 percent of annual gross profits. Today, the value of a medium-sized agency may be three or four times the net. But again, Sweeney cautions about a protracted economic downturn and the impact on any transaction. Many factors are involved, including the type of agency and mix of business, client lists, supplier relationships and position in the market. Buyers and sellers differ. But it’s a regional and national market and owners should be open-minded.
While ITA handles lots of agency transactions, Sweeney is also active in the tour operator sector of the market and a member of the National Tour Association (NTA). “2009 will see a lot of activity on the supplier side and the possibility of more joint ventures,” He said. He also expects volatility in terms of agency affiliation with consortia as agencies seek to optimize the value of their affiliation.
Visit wwwtravelbusinessbroker.com.
# Dec 05, 2008
# By: George Dooley
# TravelAgentCentral
Owners of travel agencies should prepare for the hangover from the 3rd and 4th quarters of 2008 to accelerate into the first half of 2009. Service industry multiples of EBITDA (Earnings before interest tax depreciation and amortization) have always ranged between 3 – 5 ½ times earnings regardless of what type of service the company provides. Buying a business without any hard assets is a challenge as buyers simply want to receive what they pay for. Mid size shops are commanding 3 times EBITDA while larger travel businesses are still receiving 4 times EBITDA. Small agencies are commanding 33% of annual gross profit. 2009 transactions will require more sellers financing the transaction as many banks do not want to lend on a business with no hard assets. This perfect storm will subside and the multiples will expand again around 2010. This is a very resilient industry that will not die. My firm expects to see lower down payments and more of the purchase prices determined by an earn out formula pegged to the performance of the agency in the 12 months following the closing. The forecast calls for pain in the 1st half of 2009 with gradual easing of tightness in the latter part of next year. Sellers must come to grips that buyers are not going to over pay for a travel business in this environment. The structure of the transaction should contain a performance clause allowing the buyer to look back at the end of the 1st year’s actual performance. A final purchase price is usually not determined until the 1st anniversary of the transaction. The terms of any transaction are equally important as the purchase price. As always “The risk of selling an agency too early pales in comparison to the risk of selling to late…†Sellers need to remove their heads from their hearts as there is no room for emotions during a business merger.
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Transactions will continue to be completed however the market shifted in mid 2008 from a seller’s market to a buyer’s market. This should be the case until late 2009 – 2010. Look for leisure and corporate shops to pick up steam in the 3rd quarter of next year as we begin the recovery of this great travel industry.
The travel industries number can be a little deceiving earlier in the year sales were floated by advanced bookings. As of ARC’s latest report the total overall sales to date are down -11.6% or a 1.8% change compared to same month last year. The more disturbing number is the total transactions for the year when compared to the same time last year is -15.31% which is an industry change of -6.46%. Bill Poling illustrated it best in his travel weekly article the industry has just run out of steam. The industry boosted by advanced booking seems to trail just behind the curve of spending and finance trends. Not surprising considering the general opinion that we deserve to vacation and travel. But that same buffer that supported us through the first 3 quarters of 2008 will send us to the bottom in 2009, with a long climb out in 2010. With slowed spending and a loss of credit lending the travel industry will fall hard and fast in the next few months.
I see changes on the horizon that will force the travel industry to adapt and change in the next 1-2 years. The loss of unlimited or at least the opinion of unlimited credit has frozen the average homes purchasing power. Given the fact most purchasers buy on emotion and justify with logic the current economic turndown adds a dynamic that tends to slow cash flow from typical households in the US. I also think there is a trend in travel that will challenge the old paradigm of travel and vacations. Welcome to the green and philanthropic movement. Travel with a mind to environment and philanthropy. Smaller niche or agencies specializing in these areas stand to make some good advances in the coming markets. Placing these agencies in the driver’s seat when it comes to options to buy or sell when the time is right. Larger agencies looking to step into the arena combined with the current buyers market could forecast a great opportunity to combine strengths with appropriate mergers and intelligent acquisitions. Those who change first with an eye on the horizon stand to weather the storm and ride the wave of growth that follows the rough seas of 2009 into a promising outlook of 2010.
