Travel agency consolidation is fueled by pandemic, retirements
Sep 09, 2020
Robert Sweeney, CEO of Innovative Travel Acquisitions, said that travel agencies of all sizes and types are being acquired.
It’s no surprise that the economic hardships associated with the coronavirus pandemic have triggered a wave of consolidation among travel agencies. But those who have been actively involved in agency mergers and acquisitions since the spring say it is being accelerated by another factor: The number of agency owners who are approaching retirement age.
Both Robert Sweeney, CEO of Innovative Travel Acquisitions, and Mark Pestronk, industry attorney and Travel Weekly’s “Legal Briefs” columnist, said their acquisition-related business has doubled in recent months.
“Joining arms in times like this usually makes more sense than trying to swim upstream yourself,” Sweeney said, noting agencies of all sizes and types are being acquired.
The way an agency sale is conducted has shifted since the beginning of the pandemic. Little to no cash is being offered upfront, and most deals are based on the agency’s performance in the coming years, a model known as an earn-out.
“Buyers are in cash-conserve mode,” Sweeney said. “There are plenty of transactions that are taking place, but they’re all back-end-loaded.”
Most acquisitions today, Sweeney said, are based solely on earn-outs over the next three years, with payments made either monthly or quarterly. Typically, the buyer will pay from 10% to 20% of gross profits derived from business from the seller’s client list as well as new business.
Pestronk agreed that, with most sales today, the price of an agency is set as a function of that agency’s results in the coming three years. In one deal he’s been involved with, terms are extended into 2024, he said.