If you own a travel agency that grosses more than $3 million in sales annually, and you’ve got a solid market share, a diverse business mix, and talented employees, buyers may come knocking on your door. But what if yours is a smaller agency? How can you attract potential buyers?
Just as a homeowner takes pains to stage their house to boost its value before putting it on the market to sell, agency owners can increase the attractiveness of their agency by preparing their business before they put it on the market.
That was among the topics addressed at a workshop on exit strategies during the 2018 annual conference of Travel Leaders Network in Las Vegas earlier this month. The presenter, travel industry attorney Mark Pestronk, was joined by a panel of three industry members who collectively have acquired dozens of agencies in recent years.
Preparing your agency for sale
Here are eight steps that agency owners should take in the year before they put their agency up for sale.
1. Don’t sign new long-term contracts.
Avoid signing new long-term GDS agreements or office leases, as they make an agency less attractive to buyers. This is Rule #1, Pestronk said. For instance, he explained, if you sign a new contract with Apollo, you could be limiting potential buyers to other Apollo agencies.
Buyers also do not want to be saddled with a long-term real estate lease, particularly in an era when location drives less and less agency volume.
The exception, said panelist Jason Block, managing partner of Travel Equity Partners, is when an agency’s physical location is an important factor in attracting new business. “The key is having good data, being able to document that it is bringing in new business,” said Block, whose travel holding company is in Alpharetta, Georgia.
2. But do sign some types of contracts.
There are exceptions to the no-new-contracts rule, Pestronk said. Employment contracts, even those that do not include a non-compete or non-solicitation clause, are worth signing because they make employees less likely to leave an agency after it is acquired. It is primarily a psychological effect, not a legal one, he said.
It is also a good idea to have your corporate accounts sign a contract, even if the contract stipulates that the account can terminate in 30 days. Again, it’s the psychological effect. “Once they sign they are less likely to jump ship once you sell,” he explained.
3. Incentivize your agents to sell more.
In Block’s view, the most important step leisure agencies can take in preparing to sell is to put all sales advisors on a production-based compensation plan. “The minute you do, you’ll find that 90-plus percent of them will start producing more. Your business will be more profitable, and it will be more compelling for a buyer.”
Similarly, Pestronk said, owners should redouble their efforts to sell preferred suppliers in order to maximize overrides and increase the bottom line.
4. Make yourself dispensable.
If you’re planning to stop working at your agency after the sale, it’s critical to train or hires someone to do your job, Pestronk said. “You need to have staff that is trained to replace you, to be a general manager of your location. Having that talent will make you a very attractive prospect.”
Panelist Dave Lovick, co-owner of Market Square Travel, a Minnesota agency that has acquired 15 to 20 locations in the last two decades, said that for his firm, the top factor in making a purchase is people. “Bringing in good salespeople is a big deal. Our biggest struggle is finding good talent, so if an agency has that, it makes it quite valuable.”
In the same vein, if you are an agency owner who is personally responsible for a large share of your firm’s sales volume, you should change that before trying to sell, advised panelist Tom Carlsen, CEO of Envision Travel Holdings in New York. “If an owner is doing a lot of the sales, you might want to look at farming some of that business out to your employees. It will make your agency a more attractive sale.”
5. Recast your profits.
While your tax accountant probably advises you to charge as many personal expenses as possible to your agency to minimize its tax exposure, when preparing to sell you should add those deductions back into your bottom line so you can show a potential buyer your true profit picture, that is, your recast profits, Pestronk advised.
Make a detailed list of all such expenses, including costs like country club dues, personal travel, charitable contributions, any excess rent you pay if you own your location, so you can show it to the buyer. “When in doubt, add it back. Be expansive in making that list. All that will be considered by the buyer as profit,” said Pestronk, emphasizing the importance of this step.
6. Eliminate non-essential personnel and expenses.
If you’ve been keeping unproductive employees on your payroll, now is the time to let them go. “Having them on the payroll will make the business less attractive to a buyer,” Pestronk said.
Block also advised sellers to “get rid of any operating expenses that aren’t directly attributable to new revenue production.” Think about the multiplier effect, he said. If you’re going to sell your agency for three or four times its annual profit, if you eliminate a $10,000 expense, that amounts to a $30,000 or $40,000 gain in the sale price.
7. Have clear financial statements.
Agency owners must keep clear financial statements that can be substantiated and that they understand, said Pestronk, who commented that this is often overlooked by sellers.
It’s important that financial statements be supported, agreed Carlsen, who said he always looks through an agency’s back-office systems for supporting documentation. “Make sure the sub-reports are all tied in and that the numbers you’re presenting to the buyer will withstand scrutiny,” he advised.
8. Know when to sell.
When is the best time to sell? A year or two after you’ve implemented all of the above steps because that’s when your agency will be at its most profitable. “Sell at the top,” Pestronk advised.
(Article originally published by Travelmarketreport)