Mark Pestronk
Mark Pestronk

Q: What's happening in the travel agency and tour operator acquisitions market these days? Is it still a buyer's market because selling prices are low and terms are based mostly on future performance? Besides slowdowns due to Covid, what other problems are inhibiting higher selling prices?

A: The following are my observations, which are admittedly anecdotal because I don't represent a sufficient number of buyers and sellers to form a statistically significant sample. So, if any readers disagree, feel free to post a comment below.

First, it has been a buyer's market since Covid started, except for this past spring and early summer when buyers and sellers were more optimistic, before the delta variant affected the travel industry. Right now, there are few buyers out there and lots of sellers.

Second, there are a few smart buyers who are taking advantage of the situation by offering terms that are all, or almost all, based on future performance of the book of business or location being sold. For example, one buyer is offering 20% of revenue (i.e., commissions, fees, overrides and markups) for two years after the acquisition.

These percentage formulas are called earnouts. At first glance, such a formula sounds unattractive because it is like buying the business with the seller's own money, but there are sellers willing to take these offers because the sellers get relief from the burdens of management and often get a guaranteed salary, as well.

Third, if you have an unforgiven PPP loan or an outstanding Economic Injury Disaster Loan (EIDL), you may have trouble selling on any terms. To avoid having to wait for the approval of the Small Business Administration, which could take months, you need to set up an escrow and take other steps that would discourage many buyers. So, you may need to wait until the PPP loan is forgiven and the EIDL repaid (or assigned to the buyer) before you can sell.

Fourth, if you are a tour operator or an agency that operates its own tours, you may have more difficulty selling if you have provided clients with future travel credits and do not have the cash to pay for their future trips. Some buyers will be reluctant to take on these liabilities.

Nevertheless, there are still some acquisitions of sellers with PPPs, EIDLs and future travel credits, so if you really need to sell, you can probably find a buyer, even in today's market.

If, on the other hand, you want a fixed price with a substantial down payment, you need to wait until your agency or tour operation has had at least one good year.

By "good year," I mean a year that is at least as profitable as 2018 or 2019, whichever was more profitable. Then, you may well be able to sell at a fixed, or mostly fixed, price that is a multiple of your cash flow or recast profits for the year, instead of an earnout. 


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