DALLAS -- Thor, a services company led by industry veteran Peter
Sontag, unveiled a proposal to form a mega-agency that would be
sold to public or private investors.
The merger proposal, in which no money would change hands, calls
for individual agencies to swap ownership of their firms for a
stake in the new, unnamed agency that would have an annual volume
of $1 billion or more. That company then either would be taken
public, possibly through an initial public offering, or sold to an
investment firm interested in increasing its stake in the travel
industry.
Sontag, who joined Thor as chairman several months ago, told
Thor's subscribers at a meeting here that all but the largest
agencies and those with profitable niches are facing a rocky future
because of commission cuts and other factors. A merger could help
counter these threats, he said, by providing such things as better
economies of scale and more clout with vendors.
Sontag said Thor intends to recruit in the coming months both
Thor subscribers and agencies unaffiliated with consortiums.
Responses from agents at the Thor meeting were mixed; some said
they would not give up ownership of their businesses but others
were more amenable out of concern over the future of their
agencies. The value of the existing agencies will be determined by
an intricate formula developed by industry attorney Mark Pestronk
and Sontag, and it will involve a peer review process.
The newly created entity would aim for a pretax profit rate of
about 15%, a figure that some of the better-managed existing
mega-agencies are reaching or exceeding, Sontag said. That
double-digit profit rate -- far more than most agencies are
achieving -- is needed to attract Wall Street and other outside
investors, Sontag said.
Agents owning a piece of this new company would realize gains by
owning, and possibly selling, their shares in it. One such buyer
might be Travel Services International, a new, publicly traded
company that in the last six months has purchased several cruise
and tour operators and is looking to buy more.
Joseph Vittoria, the former head of Avis and now chair and chief
executive officer of Travel Services, told those attending the Thor
meeting that his company would "look seriously" at investing in
Thor's mega-agency.
Sontag said a 15% profit rate can be achieved primarily through
improved economies of scale, the vigorous use of preferred
suppliers and better use of technology.
Thor, based in Louisville, Colo., operates a 24-hour emergency
phone service and an international rate desk for about 1,600
agencies. It also has a negotiated hotel rate program used by about
9,500 agencies and some consortiums.
Sontag is no stranger to putting together mega-agencies and then
selling them. He led the efforts to start up, first, Gelco Travel
and then USTravel, two national agencies that were subsequently
sold and folded into other mega-agencies. He also was a senior
executive at Reed Travel Group, parent of Travel Weekly, for a
short time.