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Did the Recession Impact Your Agency’s Worth?February 11, 2010 By: George Dooley
Acquisitions of travel agencies are starting to occur again as the great recession lingers on into 2010, reports Bob Sweeney, president of Innovative Travel Acquisitions, Inc., one of the largest travel industry acquisition brokers.
“Convincing some to buy in the 2009 down market was tough,” he said. “The new economy has solidified agency buyers stance that most decent size transactions involve an earn out or performance clause. The concept of shared risk for a portion of the purchase price is paramount. Seller financing is more common today than ever.”
Sweeney told Travel Agent that 2009 was a tough year for many agencies.
“Many owners in their 60's are thinking of exit timing and aligning their shops with larger entities," he said. "A common mistake we see seller's repeatedly make is they will only consider selling to a member of their franchise or consortium. Why eliminate 80 percent of the buying pool? It's like selling your home only to buyers who currently live in the five closest surrounding sub-divisions. It's tough to be objective and play hardball with your pals. But another common error is to only talk to one buyer. Always be talking with two buyers concurrently to ascertain who wants your agency more. Comparing one to the other - not playing one versus the other. Travel companies that specialize in corporate, government, educational or religious travel are doing well and are still able to receive up to 5 times the EBITDA (accounting standard) due to supply and demand. All three public online agencies have soared in value over the past 12 months.”
Corporate travel agencies remain at a premium, Sweeney reports. Mergers can also be expected to increase as agencies seek to benefit from economies of scale or to take advantage of the availability of favorable commission overrides or preferred CRS agreements. Agency owners can also expect to realize profit boosting synergies in many mergers.
“This great industry of ours is going to recover nicely in due time," Sweeney said. "We are predicting 2011 -2012 profits of agencies to rise nicely. To take advantage, wise owners are planning to sell around the end of this year. Listing your business now really makes a lot of sense. The final purchase price will be determined based on those two years performance. Relieve your ownership responsibility of things like payroll, insurance, supplier negotiations, landlords, website, employee issues and concentrate on driving sales. If you are thinking of retiring in 2013 now is the time to sell.”
Noting the ongoing growth in ARC’s Verified Travel Consultant (VTC) program over the past year as agents drop full ‘store front’ ARC accreditation for a new business model, Sweeney notes the difficulty of accessing the value of the ‘home based’ independent agent/agency. “It’s an evolving challenge,” he said
Sweeney reports four completed transactions in January bringing his firms total to 524 transactions since 1991 when Innovative Travel Acquisitions was formed. “We will see more mergers and acquisitions in the year ahead as the recession recedes and demand returns.”