When it comes to acquiring agencies and tour operators, it’s always a buyer’s market: Travel Weekly

Marc Pestronk

Question: What is currently happening in the market for acquisitions of travel agencies and tour operators? Is it still a buyer’s market as selling prices are low and conditions are mostly based on future performance? Besides the slowdowns due to Covid, what other problems are holding back the increase in selling prices?

A: Here are my observations, which are admittedly anecdotal as I do not represent a sufficient number of buyers and sellers to form a statistically significant sample. So if any readers disagree, feel free to post a comment below.

First, it’s been a buyer’s market since the start of Covid, with the exception of last spring and early summer, when buyers and sellers were more bullish, before the delta variant affected the travel industry. At present, there are few buyers and many sellers.

Second, there are a few smart buyers who take advantage of the situation by offering terms that are all, or almost all, based on the future performance of the volume of business or location being sold. For example, a buyer offers 20% of the income (that is, commissions, fees, waivers and mark-ups) for two years after the acquisition.

These percentage formulas are called price supplements. At first glance, such a formula seems unappealing as it is like buying the business with the seller’s money, but there are sellers willing to accept these offers because the sellers are relieved of the management burdens and often get a guaranteed salary, as well.

Third, if you have an unsettled PPP loan or an open economic disaster loan (EIDL), you might find it difficult to sell on any condition. To avoid having to wait for Small Business Administration approval, which could take months, you need to set up an escrow and take other steps that would put off many buyers. So, you might have to wait until the PPP loan is canceled and the EIDL is repaid (or assigned to the buyer) before you can sell.

Fourth, if you are a tour operator or an agency that runs their own tours, you might have a harder time selling if you’ve provided customers with future travel credits and don’t have the cash to pay their future trips. Some buyers will be reluctant to take on these responsibilities.

Nonetheless, there are still a few vendor acquisitions with PPPs, EIDLs, and future travel credits, so if you really need to sell you can probably find a buyer even in today’s market.

If, on the other hand, you want a fixed price with a large down payment, you should wait until your agency or tour operator has had at least a good year.

By “happy new year” I mean a year at least as profitable as 2018 or 2019, whichever is more profitable. Then you may be able to sell at a fixed price, or largely fixed, which is a multiple of your cash flow or recast earnings for the year, instead of a price supplement.

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