Five Steps for Buyers and Five for Sellers Doing the Buy-An-Agency Dance

“It is a seller’s market!” says Bob Sweeney, president and CEO of Innovative Travel Acquisitions, Inc.

The winds of change are converging in a way that makes this year a uniquely good time for older travel agents to be selling, and younger ones to be buying. Just as the Baby Boomers are starting to think about retiring, travel sales are booming, interest rates are bottoming, and young people are cashing in their 401ks and entering the travel business.

Here are five steps for buyers considering acquiring a travel agency, and five for travel agents thinking about cashing in and moving on.

For sellers:

1. Strike While the Iron Is Hot!

Both Sweeney and Rose Haché, a travel-industry lawyer based in Houston, TX, say the market is booming, and right now, before the end-of-the-year numbers are in, is the best time to start talking. “It’s supply-and-demand and there is a strong demand,” Sweeney said.

2. Keep it confidential.

It does not help the seller (or the buyer, for that matter) to reveal the plan in advance. In fact, Sweeney says, even when the papers are signed, never tell your employees you are selling your business on a Friday; they will just go home and talk to everyone they know over the weekend, and by Monday they will come in and quit. Instead tell them on a Monday morning, so they have all day to focus on their work and calm down about the news.

3. “Go to the mattresses.”

As quoted best in The Godfather, sometimes you have to go to war, or in this case, negotiate. It’s not personal; it’s just business—so don’t let your emotional attachment get in the way. “Do not be offended by offers and do not be discouraged by rejection,” he said. Focus on the numbers.

4. “Listen, whoever comes to you with this Barzini meeting, he’s the traitor. Don’t forget that.”

Always check the references of buyers and listen to the nuances, Haché says; whatever skeletons a company may have in the closet will come out eventually. And if you are the seller, Sweeney says, be forthcoming with the bad news as well as the good.

5. Don’t get locked in.

If you are within a couple of years of selling your agency, avoid long-term GDS contracts that will lock in a potential buyer. Your agency is more valuable without one.

For Buyers:

1. Understand the value.     

Sweeney offered the following numbers about prices:

•   An agency that generates $1 million net each year likely will sell for about 5.5 times earnings.

•   An agency that generates $500,000 net each year likely will sell for 4.5 times earnings.

•   An agency that generates up to $150,000 net each year likely will sell for 2.5 to 3 times earnings.

2. Get some experience. 

“Work within the industry for at least a month,” says Haché, no matter how much you think you know. Sit next to the owner and watch what he or she does. Consider a niche that you already know well that will give you a leg up, or a group with whom you can work, from wine tours to safaris to church groups.

3. Utilize your seller.  

The buyer and seller are in the sale together. Agree that for the first year of purchase the buyer will not make any huge or drastic changes to the company that could affect the earn-out, Sweeney says. Haché suggests keeping the seller on as a consultant to ensure a smooth transaction.

4. The third time’s the charm.  

Sweeney says that typically the first two deals will fall through, so don’t get discouraged.

5. Set a 10-day expiration date.

Sweeney advises agents to always reserve the right to make your offer good for just 10 days, to avoid an endless “back-and-forth game of tennis.”

Pic:Nguyen Hung Vu