Mark Pestronk
Q: What are your latest observations about the travel agency mergers and acquisitions market? Are there an unusually large number of agencies for sale? If so, why? Is now a good time to sell? If I want to sell my agency, how can I get the best price? Also, if I sell my agency, is it realistic to expect to be able to stay on as an independent contractor (IC), concentrating on selling travel to a small number of older, valuable clients?
A: In the second half of this year, a very large number of travel agency owners want to sell and retire or work part time. The owners are generally aging baby boomers who got into the business about four decades ago.
In the early 1980s there was an explosion of new travel agencies due to a couple of developments. First, airline commissions, which formed the bulk of agency revenue at that time, were generally raised to 10% across the board. This made selling both leisure and business travel profitable, possibly for the very first time.
The second reason for the boom was a 1981 decision by the Civil Aeronautics Board, which used to regulate airlines and travel agencies, to allow rebating to corporate accounts. Before that decision, rebating of commissions was illegal. As result of the decision, many if not most U.S. companies decided that it made good sense to use a travel agency for business travel, as such use could be a source of revenue as well as good service.
So if you were a 30-year-old entrepreneur in 1980, you are in your mid-70s today, thinking about retirement. Fortunately, now is a good time to sell.
Agency acquisition prices are largely based on a multiple of past profits, and the past couple of years have been profitable for most agencies. Generally, the higher your profits, the more buyers are willing to pay.
If you are a baby boomer thinking about getting out, the most important step you can take is to maximize profits for the year before you want to sell. Do so by selling preferred suppliers, minimizing unnecessary expenses and taking other common-sense steps that I'm sure you can think of.
Contrary to what you might expect, the fact that a large number of agencies are for sale does not seem to have depressed selling prices. Rather, it has awakened potential buyers outside the industry to opportunities for good acquisitions.
After the sale, most buyers will require you to stay on as an employee or IC for a few months to a year to ensure a smooth transition. If you are unable or unwilling to do so, it could lower the acquisition price.
After the transition, if you want to work full time or part time as an IC selling travel, most potential buyers would be happy to have you do so, using the buyer's agency as your host. Otherwise, you should not expect to be allowed to continue to sell travel in competition with the buyer as an IC for another host.