The Travel Business Broker Blog

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 29^th 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

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-

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.