It’s the perfect storm, perhaps − an improving economy, a hot market sector and aging owners. Acquisitions in the travel and tourism sector are the best they have been in a decade. Is now the time to cash out of the business? Acquire a competitor or complementary business? Or sit tight?
We sat down with Bob Sweeney, president of Alpharetta, Georgia-based Innovative Travel Acquisitions, Inc. Bob is a 22-year veteran of the buy, sell or hold game, having executed hundreds of transactions involving travel and tour companies.
Have you seen an uptick in transactions in the last year and if so, what do you attribute it to?
Sweeney: Yes, there has been an incremental increase. What drives most business sales is the age of the owner who is looking to enter into the next phase of their life. If we had 20 closing transactions during the course of the year, 10 were planned and 10 occurred because of life. For example, marriage, divorce, birth, death, sickness, newfound health, spousal transfer, accident or disability. You never know, life happens.
Who’s your typical seller?
Sweeney: They used to be 63 years old, now it’s been pushed back as people have to work longer before they retire; it’s now closer to 66. But there are still plenty of people out there in their 80s that are running good companies and sharp as tacks; they are doing great. So it doesn’t mean you have to stop in your 60s, but it’s the time when most people start to look towards the exit.
Why does there never seem to be a transition plan in small tour operator businesses?
Sweeney: You’re right, too often you’re on your hamster wheel trying to run the day-to-day affairs, thinking about what you have to be doing for the next six months. Personally there’s only one blank spot in my week and it is late Sunday afternoon. But it’s important to have a transition plan, especially if you want to sell the business in the next year or two. There are certainly some things you can do to give the business more curb appeal.
What would you recommend if someone was thinking about exiting the business? What can they do to give their business more curb appeal?
Sweeney: First of all, the most important thing is to keep good books and records. In this office, I pay my CPA each month and he gives me a write-up so I can tell anyone who asks where we sit. If historically you have been just doing quarterly or annual reports, that’s not going to benefit anybody. So you certainly need to have good books and records for the year or two prior to the sale of the company in the form of monthly financials. Take copious notes of the expenses that would be non-recurring to a new owner. For example, a cleaning service, meals, entertainment, cell phones – you need to have that to the penny. You have to be able to come up with a solid look at how much non-recurring expenses affect the value of your business because that’s what the buyer wants to see and you have to be able to document it. The internal income statement is more important than the tax return.
What about databases and customer lists?
Sweeney: A well-maintained database is important. I think that having a clean reputation – not being involved in lawsuits and other affairs – is also important. Another thing is short contracts. If the tour operator has a location lease that’s about to be renewed and they are thinking about selling, don’t sign a five-year renewal; negotiate the shortest terms possible because that new buyer may have different plans. The same is true for technology.
What do typical buyers look like these days?
Sweeney: We are seeing a lot of husbands and wives who were in corporate America and maybe they got a couple of pink slips over the past two or three years and they are tired of it and want to control their own destiny. They have some money in their 401k’s and they want to run their own business. They are in their early 50s, so they have another 20 years in them. There’s also a strong business-to-business environment where there’s a regional buyer that needs a piece to their puzzle, but we’re seeing more of the disenfranchised ex-warriors.
Is there a market for these travel and tourism businesses?
Sweeney: Sure, it’s sexy, kind of like owning the local bar and grill. They don’t realize that the margins are tight and it’s hard – you have to battle. It’s not hard to get someone from outside the industry; you get people who have traveled all over the world, you could even get someone from outside the country. It’s such a huge industry, touches on so many things and there are many different types of companies. I’m amazed that we’re uncovering different types of businesses all the time.
Are there any niches in the market that you see as being more or less attractive?
Sweeney: From the tours and packages side, we find that single-destination companies light up our scoreboard. You get someone who is just doing Bora Bora or fly fishing – it’s tough to compete in that general tour arena. So it’s specialty tour operators definitely. It’s also digestible and portable from an acquisition standpoint. There are a lot of businesses out there where you have the owner and two or three independent contractors hooked in from their homes and they are making good money. And they are the experts in one particular type of travel. There are plenty of them and they are doing well.
The ideal situation is not to do just one destination but maybe do another where your calendar gets balanced off. That seems to be the formula that works. Also, people that take their hobby or passion and turn it into their business are very successful. We see that with sports tours, ski, scuba, culinary, biking, wine – those are the people who do well.
How do people determine how much their business is worth?
Sweeney: I get this question a lot and it’s a simple answer. Your business is worth how much the most motivated buyer is willing to pay you. That’s my job to find that motivated buyer who is capable and qualified. It’s our job to put them through the sifter.
When our firm represents the seller, we have an executed confidentiality form in place where the buyer cannot talk about the transaction; then we lift the curtain and try to bring two buyers in at a time. Not to play two off the other – we will compare one to the other and see if we can find a transaction that works.
The biggest mistake I see out there is that sellers work in the business for 20-30 years and they sell it to the first person who approaches them. They don’t get a competing bid for their business, but they do when the plumber comes out. I’ll never understand that.
And they will say to me, “Oh, well, I have known Charlie for 22 years now.” How can you sell something objectively to your friend? Or if they say they will only sell to someone in their consortium. That’s like me selling my house only to someone from my subdivision. It’s amazing that after 20-30 years of blood and sweat that this is what sellers do. It’s a classic mistake.
Any other good reasons to work through a third party?
Sweeney: Generic exposure. We don’t advertise who’s for sale. But most importantly it’s the relationships we have developed through the years. When I started this company in 1991, I said we are going out to meet the buyers so when I get a listing, I have a good idea of who the buyer might be. There’s new buyers coming in all the time, but there are time-tested companies we’ve sold 5-6 businesses to. They are like pitchers in baseball – we keep giving the hot ones the ball because they know how to satisfy the sellers.
Plus, it’s the quality of our database. There are 75 phone calls outgoing every day here and it’s been that way for 20 years. We have our finger on the pulse. Your friend can schmooze you out of something.
Of the transactions you execute, how many former owners are still involved in the business?
Sweeney: That depends on the person’s individual situation. If buyers want your business they will accommodate your schedule. If there’s a seller who says I love the business but the day-to-day is too much, we recommend that buyers and sellers agree to a series of one-year contracts, as opposed to a long-term employment agreement. At the end of each year the buyer or seller can walk away from it. If it’s going good, you can roll with it, if not you part ways at the end of the year. Anybody can do anything for one year, but if you don’t like the new buyer, 4½ years is a long way to go.
After an acquisition, do you keep the office up and running or close it down?
Sweeney: Certainly the first 12 months from the sale it stays open. After that they can reevaluate. People can work from home – but for the first year don’t make a lot of big changes.
We’ve all been there. Rough day at the office and you’re pulling your hair out. How do you decipher a bad day from a trend? In other words, knowing when is or isn’t the right time to sell?
Sweeney: Here’s the litmus I tell everyone. If you can picture yourself not being the owner of XYZ Tours and that brings a smile on your face, you’re ready. If it brings anything other than a smile, you’re not ready. So picture yourself not owning your business. How does that make you feel? Sometimes it’s like diving off the high dive for the first time. We have to walk them up the stairs. They look over the edge of the board and sometimes they need someone to have their finger in the small of their back just to say go. But they have to be ready; we’re not going to push them.
If they picture themselves sad at the closing table, don’t enter into the whole process. Because it is a win, not a defeat, when you sell your company. Always remember the key to everything in life and in selling your company is timing. The risk of selling too early pales in comparison to selling too late.