<B> Acquisitions Abound</B>
<I>Int'l Cap Spurs More Agency Consolidation</I>
By Sarah Welt
The spate of travel agency acquisitions that occurred last quarter could be followed by an active new year, especially with further reductions in airline ticket commissions prodding many agency owners to gain economies of scale or get out of the business altogether.
Some of the travel management companies in acquisition mode are buying agencies with high leisure travel volumes in an effort to improve their bottom lines in a thin-margin business that got even thinner when many airlines capped international commissions in November (<I>BTN,</I> Nov. 16, 1998).
The latter part of 1998 saw deals close for the largest agencies on the block, including WorldTravel Partners' merger with BTI Americas and American Express's acquisition of Travel One (<I>BTN,</I> Oct. 26, 1998), a trend insiders said will gain momentum in the first quarter.
"Acquisitions are definitely accelerating, and for the first time, I am representing more sellers than buyers as established clients want to sell out," said attorney Mark Pestronk of Fairfax, Va. "I did 38 acquisition deals in 1998, half of those in the last quarter, and I expect that pace to increase in 1999. Lots of people definitely want to throw in the towel because of the international commission cap."
Pestronk said travel agencies are tired of the uncertainty of the business, fed up with incompetent employees and "becoming unprofitable despite their best efforts to charge fees or cut costs."
Bob Sweeny, president of agency brokerage firm Innovative Travel Acquisitions Inc. based in Roswell, Ga., said he is "more convinced every day that either you have to grow or you have to go. You have got to keep growing unless you've got a niche, and there are only so many niches to go around."
But Ellicott City, Md.-based travel attorney Jeffrey Miller said he doesn't believe bigger is necessarily better. "I don't think it has anything to do with size. If you are doing all high-end leisure, you could be very small and make money. But if I were doing $50 million in corporate air, I think I'd have a problem."
Pestronk, however, said that for a corporate agency, supplementing a loss of income with leisure travel is "the fast way to go out of business," because concentrating on new leisure customers will mean inadvertently neglecting corporate accounts.
Navigant International in Englewood, Colo., has been in constant acquisition mode since spinning off from U.S. Office Products last year. It jumped into January with the announcement of its most recent acquisition, Jacksonville, Fl.-based Akra Travel Inc., with $25 million in air sales.
Protravel International of Manhattan, with $130 million in total sales, acquired the $20 million Manhattan-based Barclay Travel Ltd. last month.
Hal Rosenbluth, president of Philadelphia-based Rosenbluth International, told BTN last fall that there could be "two or three" overseas deals in 1999, with the agency looking in Spain and Italy.
Oaks Travel Management Group in Houston always has held off on acquisitions but now believes that the time is right. CEO Luis Acosta said agencies are being forced by the commission cuts to sell and there is "no doubt" that the price of agencies has been reduced because of the turmoil.
"They've been almost pressured by the environment to consider alternatives," said Acosta, adding that Oaks is talking to 18 travel agencies in the $1 million to $20 million range and hopes to close three or four deals a quarter. All the agencies he is evaluating approached him, he said.
Travel Incorporated of Duluth, Ga., also is aggressively looking for acquisitions, said president Mike Brown. "At this point it makes a lot of sense," he said.
The super regional hopes to close three deals in the next 120 days with agencies in the Southeast in the $5 million to $15 million range, each with a 65 percent business, 35 percent leisure mix.
"The value of the entire industry has gone down, and a lot of people are scared," said Brown.
While Brown said leisure isn't essential, he wants to capitalize on additional revenue streams.
Cambridge, Mass.-based Aquarius Travel, with air sales of $200 million, was aggressively pursuing seven or eight acquisitions until the international cap slowed its plans. Now president Domenic Pugliares is taking a second look, "just to make sure before I go ahead that my calculations on the hit and the way we've addressed it are correct," but expects to be back on track by the end of the first quarter.
Aquarius is talking to agencies under $50 million and "the phone hasn't stopped ringing" since the cap, with most of the calls coming from agencies under $5 million, Pugliares said.
Adelman Travel Systems Inc. of Milwaukee, Wis., is still looking to grow, even after acquiring the $30 million QST Travel Group in August (<I>BTN,</I> Sept. 14, 1998). Bob Chaiken, COO, said Adelman has been approached by several agencies that want out. While the agency has $160 million in air sales, "we think we need to be in the $200 million plus range moving forward," he said.
Boise, Idaho-based Global Travel, with $110 million in air sales, acquired the $50 million Giselle's Travel LLC of Sacramento last year and now is in due dilligence with three more West Coast agencies. And the $140 million WorldTek Travel of New Haven, Conn., has three acquisitions in the $1-5 million range it plans to close this quarter.
Covington International Travel of Glen Allen, Va., has added its own packaged tour division "so we are no longer dependent on commissions from airlines," said president Josée Covington, and is in the process of closing a deal with a $10 million agency that solicited them.
Melville, N.Y.-based Austin Travel, with $70 million in air spend, plans to close a deal with a $2 million agency by the end of January. And World Travel Service in McLean, Va., is working on completing its eighth acquisition in two years. "Two just closed and we are hoping to close a third by the first week of January," said president Denny Lewis. "I am aggressively looking to acquire additional companies. I believe that there is really no choice but to grow to survive."
But Travis Tanner, former Carlson Wagonlit president and CEO (see story, page 3), shared the following tips for agencies on the acquisition trail: "Stick to your niche. Make sure to handle local customers, not multinational customers, make sure you provide tremendous service that people are willing to pay for and work hard to get a little mix of leisure in, and I think you will be okay. Good business people that are willing to stay in a niche will survive, but people with big egos that try to become something they are not are headed to the graveyard."
Tanner said he is convinced commission cuts will continue and agreed that it is getting extremely difficult for smaller agencies to stay profitable. "If I were them, I would have tried to get out years ago," he said.