It's still a seller's market for travel agencies
Q: I am thinking of selling my agency and retiring in the next year or so. I have a few questions. First, are there lots of owners like me, and if so, are selling prices being depressed because the potential sellers outnumber the buyers? Second, my agency is entirely home-based; i.e., we have no actual office. How does this configuration affect the selling price? Third, if the buyer pays at least a portion of the purchase price based on future revenue of the business in the coming years (i.e., an earnout), how will the buyer measure revenue if we don’t have an office? Finally, in the earnout formula, will I get paid on overrides and GDS incentives or just on base commissions and fees?
A: There was a wave of agency startups in the late 1970s and early 1980s after commission levels were generally raised to 10%, airline overrides became available and rebating to corporate accounts became legal. At that time, lots of baby boomers started travel agencies, and now, 40-plus years later, they are ready to retire.
The owners who are still around have survived many challenges, including terrorism, recessions, commission cuts, disintermediation attempts and the pandemic. They are a hardy lot, but they have had enough.
Although there are many potential sellers, the agency acquisition market is still a seller’s market, and prices show no sign of being depressed. Prices are largely based on recent profits, and following the pandemic pause, profits have generally been higher than ever.
Many and perhaps most agencies have found that an office is a needless expense, and they have become entirely home-based. Saving rent expenses increases profits, so eliminating a brick-and-mortar presence can actually increase the acquisition price.
Today, a home-based agency can keep its ARC appointments and its own GDS contract if desired. If the agency is acquired, the buyer can make the ARC appointment a branch and assume the GDS contract if it is a good one.
The buyer can easily calculate the earnout amount by reference to the ARC number and the GDS pseudo-city code (i.e., location designator). Back-office and carrier reports will show commissions, fees and overrides collected by ARC number, and the GDS vendor’s reports will show incentives by pseudo-city code.
If you do group business, earnout calculations are more complicated, but sellers should try to get the markup or profit included in the earnout calculations.
If, like many agencies, you no longer have your own ARC number or GDS contract, the buyer can calculate the earnout amount in other ways, such as tracking transactions by client number or employee number, or a large buyer can assign an ARC number to you for tracking purposes.
Finally, whether the earnout includes income items such as overrides and GDS incentives is entirely negotiable. If your agency is mostly leisure, these kinds of income may be tiny or nonexistent, so the issue is moot. If you have a corporate-oriented agency, you would want to try to include those kinds of income in the earnout.
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