Selling Your Small Travel Agency? Here’s How to Find a Buyer

If you’re looking to sell your agency, in addition to taking steps to increase your agency’s appeal to potential buyers, it helps to know where to look for those buyers.

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Looking to Sell Your Small Travel Agency? Here’s What to Do

For travel agencies whose annual sales volume is less than $3 million, a good place to start is with trusted members of industry networks, including fellow members of ASTA and other agencies in your consortium, agency marketing or franchise group, said travel industry attorney Mark Pestronk, citing his own experience with agency sales.

Similarly, hosted agencies doing $3 million or less in sales and looking to sell might start with their host agency. “If you have a host agency, that really is number one,” said Pestronk. Other agencies affiliated with your host also might be interested in buying your agency.

Pestronk and three industry panelists addressed this and other issues key to selling a travel agency, during a well-attended workshop on exit strategies at the 2018 annual conference of Travel Leaders Network in Las Vegas in June.

Utilize strategic industry contacts
One good tactic for anyone looking to sell is to let your consortium or agency group’s business representative and supplier BDMs know that your agency is up for sale, as they may know someone who’s in the market to buy. “BDMs are like pollinators,” Pestronk said.

A businessperson in your community might express interest in buying, but Pestronk said that, in his experience, these prospects typically back off once they learn more about the realities of the travel agency business. The least likely prospective buyers for smaller agencies include agency brokers and employees, said Pestronk, who cautioned that “the typical sale to employees doesn’t work.”

The pool of buyers for larger agencies looking to sell is wider, with national agency brokers being top prospects. Trusted industry group members and BDMs are also good sources, as they are for smaller agencies, but larger agencies are more likely to attract interest from serial buyers and competitors, Pestronk said.

Typical deals and sale prices
For smaller agencies, that is, those with annual volume of $2 million or annual revenues of about $200,000, the sale price is usually fixed and low – “typically 45 percent of last year’s revenue or three times last year’s recast profits,” Pestronk said.

For agencies doing $2 million to $10 million in annual volume, Pestronk said the sale price is usually about three to four times of the prior year’s recast profits (that is, where the owner’s personal-type business expenses have been added back to the bottom line).

In these deals, most often only a percentage of the sale price is paid at closing, typically around 20 percent, he said. Typically, the remainder will be to the seller over the next one to three years, based on an agreed-upon percentage of actual revenues during that time, in what’s called an earnout.

It’s a different ballgame for agencies doing $10 million or more in annual sales. In these deals, the earnout is likely to represent a smaller amount of the purchase price or there’s no earnout at all. “The biggest deals have a very small amount of earnout, with over half of the purchase price paid at closing, sometimes as much as 80 percent,” Pestronk said.

When private equity buyers are involved, they prefer a fixed price that is paid entirely at closing, so they don’t have to get involved in calculating earnouts and dealing with the seller in coming years and the potential for lawsuits over lost accounts, Pestronk said. “They prefer to pay it all at closing. They do the acquisition, pay the price and go onto the next deal.”

Why buyers buy
Pestronk advised would-be agency sellers to take a look at the reasons that buyers buy, “because then you know what buyers are looking for and how to appeal to them.”

The top reason for many buyers, especially those looking to acquire a larger agency, is to increase leverage with suppliers and profits through market share overrides, he said.

Other reasons for acquiring an agency include growing profits by adding volume, creating economies of scale and filling unused capacity. Some buyers will be interested in your agency because you have a GDS contract that will position them to earn GDS bonuses.

Another reason buyers buy is to acquire talent, both frontline and management talent, Pestronk said. “Management talent in travel agencies is really at a premium. If you have people who know how to manage a travel agency, not just you, that’s a very good thing.”

Sometimes a buyer is looking to diversify into new specialties. “Everybody knows that high-end leisure is highly profitable, but nine out of 10 travel agencies aren’t in it, or they do it badly, so acquiring one who does high-end leisure is definitely a reason to buy.”

A corporate-focused agency may be looking to gain volume to boost its competitive position against mega-agencies, while other buyers may be looking to eliminate competition by buying your agency or they may be acquiring a number of agencies either to roll them up and resell or to go public.

One reason of diminishing importance to buyers is expanding geographically. “That is a dying reason for acquiring because brick-and-mortar matters less and less,” Pestronk said. “Those of you who think you have a really attractive location and think that should make you attractive to the buyer will learn that, generally speaking, that is not something that, in and of itself, is going to make you attractive.”