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Market for acquisitions booms with travel agents graying

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August 14, 2013

Market for acquisitions booms with travel agents graying

Market for acquisitions boomsOne largely overlooked result of the aging of the travel agent workforce is that it is creating a strong acquisition marketplace for travel agencies, according to buyers, sellers and one of the industry?s leading brokers.

But trend-spotters are taking note, and some of the industry?s largest and most influential companies are taking quick action.

Travel Leaders Associates, for example, sees it as a key to expansion. It is about to launch a program designed to help new entrants buy non-Travel Leaders agencies and then bring them into the franchise.

The initiative, known as the New Owner Conversion program, will launch in a few weeks as a multi-pronged program. A major prong is a matchmaking scheme that seeks industry-agnostic entrepreneurs who are looking for a franchise opportunity and have the business background to make it work.

On the flip side, it?s also looking for non-Travel Leaders agencies whose owners want to sell. Travel Leaders will act as a sort of broker, connecting the sellers and buyers it recruits, with the goal of making these existing agencies part of Travel Leaders.

?It is an opportunity to keep that agency going and possibly become stronger because it is run by someone with a knack for business,? said Steve Loucks, chief communications officer for Travel Leaders.

It also is way for Travel Leaders to grow its network, Loucks said.

To attract these new entrants, Travel Leaders will launch a website, place ads in magazines such as Inc. and Entrepreneur and work with lead-generating sources for would-be entrepreneurs who are seeking a franchise in any industry. It will vet prospective buyers to make sure they?re financially qualified.

The market for travel agencies is only likely to grow in the next decade as the bubble in the agent population slides past age 65.

According to ASTA, nearly 70% of the agency workforce is older than 55, and the percentage of agents over age 65 has nearly doubled, from 17% to 32%, in the past decade. Moreover, agency owner demographics reflect those of individual agents.

?There are lots of 65- to 75-year-olds who want to get out and retire,? said industry lawyer Mark Pestronk, who writes Travel Weekly?s Legal Briefs column. He has served as legal counsel on scores of agency sales over the years.

Colin Weatherhead, president of Your Travel Center, echoed that assertion, saying, ?The aging workforce is absolutely the driving force.? Your Travel Center, a Tzell member, has acquired several agencies over the past 20 years.

Likewise, Bob Sweeney, president of Innovative Travel Acquisitions, a leading broker for sales of retail travel agencies and other travel companies, stated flatly that the current market ?is driven by age.? He estimated that at least half his sales are by owners planning to retire.

Travel Leaders? New Owner Conversion initiative is capitalizing on that trend by looking for agencies with an established book of business who want to sell.

?We want to inject new blood into our industry,? Loucks said, adding that buying your way into the travel industry has become a viable opportunity.

And to some extent, Loucks said, the timing is excellent because retail travel is benefiting from positive media coverage.

Travel Leaders also works with its own franchisees who want to retire; its franchise agreements include right of first refusal.

Agency owners approaching retirement have to have an exit strategy, Loucks said, although some agencies just close up shop, throwing away goodwill and branding that in some cases took decades to build.

Sweeney said that agents should look beyond their consortium or franchise when it?s time to sell. Limiting prospective buyers to a single consortium or franchise, he said, is like limiting potential buyers for a house to residents of the same town.

Janet Nelson, who sold her agency, Jade Travel of Topeka, Kan., said that at first, she quietly let it be known among her own contacts that she was looking to sell. But when she had not found a buyer after two years, she called Sweeney, whom she?d known for a long time.

?Probably in two months, the ink was on the contract,? she said.

Nelson sold to a New York agency. She is working for the new owner for a year but has ceded management tasks to focus on what she most enjoys: developing and escorting groups.

Pestronk said another reason there has been an uptick in business is because there?s more confidence on the buyers? side. And even though more agencies are for sale, he said, prices are stable because agencies today are more profitable than they?ve been in a long time.

Sweeney said he has seen sales of agencies increase about 15% over the past few years.

A lot of sales depend on finding the right fit, he said. A buyer might be looking for an agency in a particular geographic location, for an agency already selling the same preferred suppliers or for an agency with an attractive niche.

Pricing the sale of an agency is typically calculated as a percentage of gross profit.

Weatherhead said that in the 1990s, agencies would typically sell for a price that equalled 100% of their commissions, but that fell to 15% to 25% after ?the world imploded economically? in 2008 and 2009.

Now, prices can be 30% to 45% of commissions or gross profit. It can also vary according to an agency?s sales volume.

Acquisitions vary in type. Some are what Pestronk calls ?absorption,? in which the buyer closes the seller?s location and moves the business to the buyer?s location. Others are expansions, with the buyer keeping the location of the purchased agency open.

In addition to an aging agent population, the need for scale is also driving sales of agencies.

Weatherhead said most agencies today have annual sales of under $10 million, which means they don?t have the volume to get higher commissions and the benefit of airline agreements. Owners are often juggling frontline sales duties along with management and administrative work.

?We?ve bought a number of agencies over the last 20 years that at best were breaking even,? Weatherhead said. ?When we acquire them, because of the synergies, higher levels of commissions and benefits of scale, we can turn them around and increase their profitability by 22% to 26%.?

Your Travel Center is itself an example of how the industry has changed. The number of locations it operates has shrunk from 16 to seven since 2000. But its revenue has tripled in the same period, to $115 million. That revenue expansion was realized by acquiring smaller agencies and hosting independent contractors.

Not all agency owners over age 65 are set to retire. Weatherhead, who himself is 65, said he plans to continue working for the next five or 10 years. He is not involved in working with the frontline agents and instead works on strategic planning.

His retirement dilemma, he said, is, ?What would I do if I retire? I?d travel. What do I do now? I travel.?

Source Travel Weekly

 

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