Sellers of travel agencies hold all the cards as demand bests supply

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By all accounts, people peddling an agency are discovering that it's a seller's market.

In recent weeks, travel management company Atlas Travel (No. 37 on the 2018 Power List) said it would acquire Flagship Travel, and Schilling Travel said it would acquire Riverdale Travel. The acquisitions were motivated by different logic: Atlas said it is growing its leisure expertise, while Schilling called it the first of a planned rollup of Midwest agencies. But they also mirror a larger trend of agency acquisitions.

"I think the supply and demand has made it a seller's market for sure," said Bob Sweeney, president of Innovative Travel Acquisitions. "There are just not as many retail travel agencies as there used to be. I think that when one does pop up for sale, it can command a pretty good price right now. Interest rates are low, business is good. It's kind of a perfect storm, if you will, for a seller of a retail travel agency."

Robert Joselyn, president and CEO of the Joselyn Consulting Group, agreed that demand for agency acquisitions is high.

"Sellers are getting higher multiples than they ever have in my career, and they're getting better terms than they've ever gotten before," he said.

Robert Herman, president of Schilling Travel and managing partner of parent company Allied Continental Holdings, acknowledged that today's market does favor sellers. 

"So why buy now? Well, in many cases, the owners have been waiting for this time to sell," he said. "And so good agencies that would not have been available before are thinking of selling. I believe we have a good chance to acquire great agencies."

Schilling's acquisition of Riverdale was the first in a planned roll-up of agencies in and surrounding Minnesota, where both Schilling and Riverdale are based. 

Before making an acquisition, Herman said, Allied Continental applies a stress test to ensure the company could withstand a downturn in the market, which will also be a factor in how fast the company expands. Right now, it is planning for a rate of about one acquisition a year, targeting agencies that sell more than $5 million per year but less than $50 million. (Once the Riverdale acquisition is complete, the combined company will have more than $20 million in annual sales.)

Acquisition activity in the market is at a high, according to Joselyn, a fact he attributed to several factors: agency owners getting older and considering succession strategies; negotiating power that comes with size; and when it comes to large agencies, freely flowing venture capital.

Industry lawyer Mark Pestronk said retirements are a primary motivator for owners' interest in selling. 

Around 1980, a number of agencies, both corporate and leisure, were founded because of two factors, he said. First, commissions across the board jumped to 10%, whereas previously they averaged between 5% and 7%. Second, the government enabled corporate rebating, so corporate agencies could share commissions with corporate accounts. That made agency-corporation relationships more prevalent, growing corporate agencies.

"Now, 38 years later, they are retiring," Pestronk said.

Large buyers, like Direct Travel (No. 10 on the Power List) and Travel Leaders Group (No. 8). are responsible for a number of acquisitions, he said. Many smaller acquisitions, including of home-based agencies, largely go unreported because of their small size.

Buyers, Joselyn said, are motivated by growth, geographic expansion, benefits from economies of scale and, to a lesser extent, talent acquisition of either agents or middle management.

According to Sweeney, there are about 10,000 agencies in the United States today. That number is down considerably from about 15 years ago, when he estimated there were 30,000.

"The herd has been thinned quite a bit, by about two-thirds," Sweeney said. "The ones that are doing business now ... they're profitable. The strong survived."

He predicted that thinning of the herd will continue at a rate of around 700 per year. In the next five to 10 years, Sweeney said, he believes there will probably be about 7,500 agencies in the U.S.

"There are always people trolling around looking to buy, and the key is just the timing on the sellers' [part]," he said. "You want to sell into your strength when you've had a couple of good years in a row, as opposed to the opposite."

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