The Travel Business Broker Blog

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.

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.

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# 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.
 
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.