The Upside of the Downturn


As the travel agency industry looks for new ways to survive and prosper, “buy or be bought” is increasingly becoming the rallying cry

The credit crunch, declines in business and leisure travel demand, and economic uncertainty are accelerating mergers, acquisitions and consolidation as a constructive response to tough times.

Industry leaders see mergers and acquisitions as a vital tool to help agencies survive and prosper. Agencies are seeking to position themselves in a highly competitive $110 billion market and grasp future opportunities.

While headlines were made by Protravel International’s recent acquisition of Rich Worldwide Travel and Houston-based Frosch Travel’s merger with New York City-based Linden Travel, there is growing consensus that more transactions are underway impacting agencies of all sizes.

For example, Ricci Zukerman, the president and founder of Worldview Travel, headquartered in Santa Ana, CA, predicts many agency closings and mergers in the year ahead. She urges agents to align themselves with strong, compatible agency partners and stresses the importance of a strong client base and skilled staff in any transaction. Worldview has annual sales of $200 million-plus.

Bob Sweeney, president of merger and acquisition broker Innovative Travel Acquisitions, echoes Zukerman. “We will see more mergers and acquisitions and closings as the downturn [continues],” he says. “The in-between agencies may be the hardest hit. Much depends on how long the recession lasts.”

Scott Koepf, president of the National Association of Career Travel Agents, adds, “The industry is moving from a travel agency-centric model to a travel agent-centric model.”

The Protravel/Rich and Frosch/Linden deals offer some insights. All four agencies are strong performers in their own right and the transactions clearly build on strengths. This includes diverse product portfolios, solid management skills, skilled staff, niche expertise and strategic positioning. They are seen as a reflection of optimism and confidence in the future. They also better position the agencies when the recovery takes effect.

Sweeney, who has advised Protravel International’s President Priscilla Alexander, says mergers and acquisitions are not just for big agencies with multimillion-dollar sales. Smaller firms can—and many should—exploit the synergies that can emerge from an acquisition or merger.

Zukerman, too, believes many agencies can benefit from an affiliation with a larger agency. They can make money and enhance client-service quality with shared technologies and marketing while staying active. The biggest barrier for many agency owners is fear of change and an excess of hubris.

Successful deals often can, and do, benefit both partners. Protravel, with $540 million in annual sales, gained access to new markets with its acquisition of Rich Worldwide, a $60 million agency based in Harrison, NY. The deal opened the door to expansion, cost cutting, market niches and access to new marketing and technology resources.

Frosch Travel, with $500 million in 2008 sales, merged with Linden Travel (with $113 million in sales), offering Frosch a stronger position in East Coast markets.

Another aspect of the trend to more mergers and acquisitions is the recent agreement between the American Express Representative Network and ALTOUR. This provides Representative members with access to ALTOUR’s diverse services—including air —in addition to the range of existing services offered by American Express, such as Travel Impressions. Many industry players, including Ellen Bettridge, vice president, Retail Travel Network, American Express Travel, see more partnerships and cooperative deals coming. Participants gain leverage and market clout without changes in ownership. In this case ALTOUR gains the advantage of membership in the powerful Representative Network while the Network gains access to ALTOUR services and resources.

Smaller Agencies

It is not just the big agencies that are in play, however. The current downturn is impacting agencies of all sizes and changing the agency distribution system. Charlie Funk, an agent with Just CruisinPlus who serves on CLIA’s board, predicts on his blog that as many as 33 to 50 percent of agencies will fold due to the current recession.

Less pessimistic is Jackie Friedman, general manager of Nexion. With more than 2,400 relatively small independent agent members, Friedman offers a different take.

“Mergers and acquisitions will continue to gain traction as smaller agencies will continue to consider that option. The host agency model is another viable option for agents or agencies who want to continue operating with reduced expenses associated with ARC accreditation,”
Friedman says. “The host agency enables the agent to remain competitive and as profitable as possible in this down economy.”

Andi Mysza, president,, the independent contractor division of Montrose Travel, notes the parallels between the current downturn to the post-9/11 crisis and the 1995 airline commission cuts.

“Many agencies are laying off employees so we are seeing an abundance of skilled agents on the market. While many are seeking employment, others have made the decision to control their own destiny and are establishing their own home-based businesses. The result will be fewer storefront and more home-based agencies,” says Mysza, who is also president of the Professional Association of Travel Hosts, which represents major host agencies.

Many agencies are also owned by families, which have nurtured the companies through good times and bad. Protravel’s acquisition of Rich Travel illustrates this. Protravel’s Alexander says, “This merger allows us to leverage expanded sales on behalf of our clients while finding economies of scale that will permit us to invest in people and technology for continued success.”

Rich Worldwide—founded by Ina and Allen Rich in 1956, and now jointly run for the last few years by their two daughters, Michele and Donna, and their sons-in-law, Nathan Devore and Richard Esman—is another example. The four principals will continue with the merged companies in senior management positions.

“As a family-run business, it was important to find the right agency with which to merge,” says co-president Esman. “We looked for  an agency with impeccable credentials, a fine reputation for service, a similar business philosophy, smart people and committed to growth in the long term. We believe Protravel is all of that, and more.” 

The Three Cs

Kevin Mitchell, chairman of the Business Travel Coalition, urges agents to pay attention to the three “Cs”—costs, customers and the competition. Says Mitchell, “Cut out every possible non-essential cost; demonstrate ever greater respect and appreciation for the customer; and continuously improve against [online] service features and communicate a value proposition to differentiate yourself in the marketplace.”

Sweeney recommends looking at the new market conditions. “From the sellers’ standpoint, one of the greatest ways to facilitate a merger or acquisition is to explore the option of seller financing. With banks lending to business in a current freeze, this option is one of the best ways to help a transaction move forward. Real-world pricing is also vital.”

Dwain Wall, senior vice president and general manger of CruiseOne and Cruises Inc., offers another perspective. “Affiliating with a strong host or franchisor provides a small agency or independent agent with the tools of the large agencies at a cost they can afford. It also ensures that agents continue to receive the highest possible commissions,” he says.

More on the Way

Merger activity will continue with some firms aggressively seeking partnerships. One among them is Los Angeles-based Altour, which signed an agreement with Aer Travel, an independent agency in San Diego. Alexandre Chemia is the founder and owner of ALTOUR, with an estimated travel volume of over $500 million.

Another major player to watch is Travel Leaders Group, headed by CEO Barry Liben. Last year’s merger of Tzell Travel with Travel Leaders has formed an expansion-minded group with $7.1 billion in annual sales. Then, too, there are the giants to watch, including American Express, Carlson Wagonlit, Omega and the online agencies such as Travelocity.

What Is Your Agency Worth?

“There is no room for emotions during a business merger,” says Sweeney, who warns that owners of travel agencies should prepare for the hangover from the third and fourth quarters of 2008 to accelerate into the first half of 2009.

Sweeney adds that buying a business without any hard assets is a challenge, as buyers simply want to receive what they pay for. Mid-sized shops are commanding three times EBITDA [earnings before interest tax depreciation and amortization] while larger travel businesses are still receiving four times EBITDA. Small agencies are commanding 33 percent of annual gross profit.

This year, says Sweeney, 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,” he believes, adding that “this is a very resilient industry. 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 first half of 2009, with gradual easing of tightness in the latter part of next year.”


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