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Agency Mergers, Acquisitions May Soar in 2011November 10, 2010 By: George Dooley
Generalist travel and tour companies serving mid-grade leisure travelers are in the toughest spot in the distribution chain and will remain so until national housing and employment trends improve, according to Bob Sweeney, president of Innovative Travel Acquisitions in Alpharetta, GA, a major merger and acquisitions firm. “This will impact them if they choose to sell,” he said.
“In the best position are specialty agencies and niche tour operators who continue to thrive as do the top tier of deluxe and luxury travel sellers,” Sweeney says, forecasting a 10 percent increase in merger and acquisition activity in the year ahead. He also notes that GDS contracts are still very lucrative and a major portion of corporate agencies income.
“The recovery is slowly coming around again,” Sweeney continued. “2011 should be up 10 percent from 2010 levels barring any major negative events. From our perspective pricing is certainly rising. But agency owners need to be sure to button up any contracts and define the roles of independent contractors versus employee status. This will be a key tax issue.”
In terms of pricing an agency and a business valuation, Sweeny offers a basic formula: 2X Seller’s Discretionary Cash = Total Perks + Benefits + Salary or Total Owner’s Takeout. This formula can be used to determine the fair price for a small business with a couple of employees and no hard assets, unless barrier to entry is high. Larger companies, that are profitable, are priced at 3 to 5X EBITDA. (Earnings Before Interest, Taxes, Depreciation and Amortization.)
Sweeny reports that his company is consulting on a good number of transactions and trying to close them by December 31, 2010. “Many of them are back end loaded, where the performance of the seller’s business in 2011 will determine the final purchase price,” he said. “Sellers should not limit themselves to only speaking with one buyer, which is a common error. Two buy side prospects are better.”
Sweeney also urges agents to use a travel-tourism industry specific attorney. “They understand the intricacies regarding business under deposit but travel has not yet taken place at the time of closing, accounts receivable, and accounts payable treatments,” Sweeny said.
When asked about what’s hot in travel, Sweeney sharede six areas that appear to be booming including: medical tourism, space tourism, faith/mission travel, government travel, corporate travel and educational travel.
Innovative Travel Acquisitions has just completed the sale of its 531st company, World Mission Tours of Miami, a second-generation business specializing in faith based travel.
Unchanged are the most common reasons for selling that Sweeny hears from recent sellers::
* I am in my mid-60s…its time.
* Tired of day-to-day battles.
* Surviving downswings = too tough.
* Simplifying my life by selling.
* Business continues to be more difficult, so I made the move to the exit now.
* Selling will insure my employees and clients can continue working together.
Most buyers welcome the seller to stay involved with the business after the sale has been completed, he notes. “This is conducted on a schedule that meets the needs of the seller. We will FedEx a $500 referral fee check for leads that generate a closing commission and if you need to know the current value of your business, contact us.