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.