The Travel Business Broker Blog

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.

1. Seller Financing
2. Real World Pricing
3. Flexible Negotiations  

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.

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.
 
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.