Travel Agency Acquisitions Are Being Driven by Aging and Ambition

Over the last few years, acquisition activity has heated up among travel agencies as the industry has finally bounced back following the 2008 financial crisis.

Bigger agencies are gobbling up small and niche agencies at a rapid pace, while experienced agency owners are looking to cash in before the next potential downturn in the market.

While the terms of many deals aren’t disclosed because major travel agencies tend to be private companies, the biggest one so far seems to be Australian corporate travel giant Corporate Travel Management’s $49.6 million acquisition of California-based Montrose Travel.

“There are agencies looking to expand through acquisition and looking to increase profitability, by combining volume they may be able to generate more revenue from sales,” said Robert Joselyn, a travel agency consultant and founder of TAMS, a service providing financial guidance to travel agencies.

A rare public company in the agency space, Corporate Travel Management’s annual reports shine some light on the strategy behind the pricy acquisition.

“With the acquisition of Montrose Travel, the Group’s coverage of the USA now extends to the West Coast,” reads the latest annual report. “The Montrose Travel acquisition brings a new loyalty business unit into the Group.”

From a financial standpoint, the acquisition helped the company grow its workforce five percent to more than 2,000 employees, which was also bolstered by its acquisition of Boston-based travel management company Travizon Travel.

With Montrose Travel’s sales volume factored in, along with its traditional operations and other smaller acquisitions, Corporate Travel Management’s transaction volume rose 35 percent year-over-year. This lets the company negotiate better rates from travel partners and receive higher override payments based on transaction volume.

Another major transaction in the last year was Flight Centre Travel Group’s $28 million acquisition of StudentUniverse, which added more than $250 million in transaction volume to its portfolio.

“[StudentUniverse] is now a market leader in a rapidly growing sector, which is estimated to be worth in excess of $180 billion annually, and we see solid future growth potential for it, both within its existing markets and globally,” said Flight Centre Travel Group president Graham Turner after the transaction was announced. “We believe it will be a great addition to [Flight Centre] as the company continues to expand its presence in youth and student travel and as the company continues to develop stronger online capabilities, both within its existing businesses as part of the blended travel offering and in new areas.”

Size matters

These deals also enhance the parent company’s competitiveness in the overall marketplace.

“For some, it’s not about being in the agency business itself in long run but acquiring a huge volume for multiples and flipping it,” said Joselyn. “This includes some other people internationally who might be in the agency business. One of the things I question is if you go out and buy a whole bunch of agencies in a short period of time, actually being able to bring them together [is a challenge]. There’s a huge bet on the table that the multiples [upon selling an agency] are going to get up to eight.”

Joselyn thinks that transaction volume will slow in coming years, since most of the attractive assets will already be off the market. But that hasn’t stopped members of his TAMS agency group from asking him often about the prospect of selling their agencies.

Less well-known agencies are still selling, as evinced by Frosch’s recent acquisition of All Horizons Travel, Gadabout Travel, and Treasure Coast Travel Agency. Many agencies don’t announce their acquisitions in the press, as well.

“Smaller leisure agencies are talking about acquisitions” said Joselyn. “One of the things that’s causing this, once you take the big travel management companies off the table, is that people talk about aging in this industry for agents, but the owner population is too. They’re getting to an age where they’re thinking about their exit strategies. What gets a lot of press is that are we bringing young agents into the agencies; pretty much everybody agrees that finding qualified agents with experience is a ship that’s sailed, so the question is bringing people into the industry.”