Forecasting 2009 Travel Mergers and Acquisitions
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.
Tags: Buying Travel Business, Travel Agency News, Travel Industry, Travel Industry Outlook, Travel News