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

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.

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.