Four tips for ensuring an agency acquisition goes smoothly

By Mark Pestronk
Mark PestronkQ: On Jan. 1, the federal tax rate for most long-term capital gains increased from 15% to 20%, with an additional 3.8% for high-income individuals. Since the increase was widely predicted, were there a lot of sellers hurrying to get in under the wire before the law changed? If so, what general advice can you give about the travel agency acquisition process?

A:
I represented a record number of buyers or sellers during the last two months of 2012. Some of the deals would have been done regardless of the tax law changes, but most sped along more quickly than usual in order to close by midnight on Dec. 31.

In several columns in 2012, I advised buyers and sellers about various aspects of agency acquisitions, including the most successful ways to find a buyer or seller, current trends and the value of home-based agencies. Here, I offer four additional pieces of advice that are probably contrary to the conventional wisdom offered by many lawyers, accountants and business consultants:

• If you are a seller, always try to get the other side to agree that your attorney will provide the first draft of the agreement. While many lawyers will tell you that it is traditional for the buyer's attorney to provide the first draft, there is no reason to follow tradition in these matters.

When your attorney drafts the agreement, it will be designed to protect your interest to the maximum extent possible. Even after the other side negotiates the changes that it needs, you will probably end up with a final agreement that better protects you than if the other side's attorney had provided the first draft.

Sellers are not usually as successful in getting buyers to agree to this process, especially if the buyer is very experienced in doing acquisitions, as the buyer will want to use its standard forms. Nevertheless, it is worth trying.

• Even the most complicated deals can be closed in a couple of weeks if the parties are willing and their attorneys are capable of keeping up. Although ARC requires that the seller obtain prior approval of the change of ownership of an ARC-appointed agency, most buyers and sellers ignore this requirement and close on a schedule that they choose.

However, for sellers, jumping the ARC gun is very risky unless you know and trust the buyer with your bank account, reputation and livelihood, as ARC holds the seller responsible for any defaults before the effective date of approval. Fortunately, most sellers sell to trustworthy buyers; the others should maintain control of ticket stock, ticketing, ARC account and reporting until ARC approval.

• It is not necessary to use a lawyer who specializes in travel agency matters, but it certainly helps. In my experience, the deals are smoothest, least stressful and least expensive when both lawyers know a vendor commission receivable from a commission-split payable to a hosted agent.

• It is no longer necessary to have in-person closings, or even for the buyer and seller's principals to be in the same part of the world. Conference calls, scanned and emailed documents and wire transfers are all that is needed, and the buyer can come to the seller's office to take over operations on a convenient day right after closing.

Mark Pestronk is a Washington-based lawyer specializing in travel law. To submit a question for Legal Briefs, email him at mark@pestronk.com.  This page is protected by Copyright laws. Do Not Copy. Purchase Reprint
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