An agency's size determines best bets for prospective buyers

By Mark Pestronk
Mark PestronkQ: In your June 18 column, "Look to hosts, other home-based agents as potential buyers," you wrote about how home-based agencies could find buyers for their businesses. What about agencies of other types and sizes whose owners would like to sell because they are nearing or at retirement age? Where are those owners most likely to find buyers? 

A:
There are probably more agency owners in the baby boom generation (those born from 1946 to 1964) than any other age group. Many were attracted to the business by its glamorous reputation and relative stability. Now that the business has completely changed and many of them are in their mid-60s, they are ready to get out.

Based on my experience in advising buyers or sellers in acquisitions of agencies of all sizes, here are the most successful methods by which potential sellers have found potential buyers.

If you own a small agency, which I define as those with less than about $3 million in annual gross sales, you are most likely to be successful in finding a buyer from the following sources (in descending order of likelihood): (a) a fellow consortium, franchise or host agency member you know and trust; (b) a well-to-do business person in your community; (c) a travel business broker such as Innovative Travel Acquisitions, which is the biggest travel business broker operating on a national scale; (d) a business broker in your community; (e) a trusted employee or independent contractor.

For a midsize agency (one with between about $3 million and $30 million in annual gross sales volume), your best bets are probably as follows: (a) a travel business broker such as Innovative Travel Acquisitions; (b) a fellow consortium or franchise member you know and trust; (c) a competitor looking to decrease competition and gain operating efficiencies; (d) a local business broker.

Large agencies (above about $30 million in yearly sales) generally do not need to look actively for potential buyers, as the latter probably solicit you from time to time, either directly or through middlemen such as business brokers or private equity groups. Your job is to sort out the serious buyers from the lookers that really just want to learn more about your business and to sort the deep pockets from the bottom-fishing buyers that just want a big bargain.

Serial buyers such as the former Navigant, which made 50 acquisitions before it was acquired by an even bigger fish, actively scout for prospects among the pool of large agencies. They have been finding that there are fewer and fewer prospects, as they lament that the good ones, like eligible men in big cities, are all taken.

The alleged dearth of large agencies for sale means that we are going to see a seller's market for larger agencies in the years ahead, which is good news for successful baby boomers who want to retire. Higher prices will eventually benefit the midsize and small-agency markets.

Incidentally, if your agency tabulates only commissions, fees and markups and does not measure or count sales volume, then multiply your commissions, fees and markups by about 10 for purposes of determining into which category your agency would fall.

Mark Pestronk is a Washington-based lawyer specializing in travel law. To submit a question for Legal Briefs, email him at mark@pestronk.com. 
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