Agency Consolidation On Rise

Several recent acquisitions by regional travel agencies of other fairly sizable agencies suggest that there is more to this most recent wave of consolidation than the normal seasonal spate of such transactions.

Deals completed in the past month were the purchase of Cleveland-based Premier by Mt. Laurel, N.J.-based Travel One; Irving, Texas-based Sunbelt Motivation & Travel by Santa Ana, Calif.-based Associated Travel International; Portland-based Accent On Travel by Salt Lake City-based Morris Travel; and Express Boyd Ltd. of London by Fairfax, Va.-based Omega World Travel.

Morris Travel was one of several agencies to make similar acquisitions last year around this time (<I>BTN</I>, Jan. 29, 1996), but the wave of consolidation then thought to be in the works did not materialize. This time around, however, conditions for further acquisitions seem far more ripe, with several of these purchasers and other super-regional agency executives stating that they are actively looking to make other purchases in the year ahead.

According to McCord Travel Management president Bruce Black, who is also co-chairman of the seven-member group of super-regional agencies SRGI, "the consolidation cloud has started to rain a little bit." Despite the considerable risks inherent in owning and buying agencies today, Black said he and most of the other members are shopping, but whether or not they can find the right fit remains to be seen.

Meanwhile, many agency owners are looking to sell because the fundamentals are changing at a daunting pace. A focus by airlines and other suppliers on reducing distribution costs, along with the entrance of technology companies, have helped create a tougher environment that includes tighter margins, increased costs and limited movement in revenue streams at the same time that a substantial investment in technology is required.

Conditions that were already in place last year have intensified further, "adding up to the straw that breaks the camel's back" for many agencies, according to Travel & Transport president Frank Dinovo. "A lot of people in the business for a long time are looking to get out," he said. "For some, it is a matter of age. They are ready to retire. An awful lot of war babies are thinking of that."

At the same, Dinovo said, there are quite a few qualified buyers, himself among them, who have done well in the post-commission cap period, making now a good time to buy. That is particularly the case because American Express and the other mega agencies are not in a domestic buy mode as they have been in the past, which would jack up the price. Even so, Dinovo plans to proceed with caution because "a good way to get into trouble is to make a foolish acquisition and overpay," he said.

While none of the most recent purchasers would discuss their purchase prices, all said that the deals complemented their areas of coverage and included incorporating the previous management team to extend their infrastructure and retain customers.

Jeff Harrow, president and CEO of Travel One, which reported $355 million in air sales in 1995, said the acquisition of Premier, which reported $64 million in air sales in 1995, was the agency's biggest buy to date and has helped expand his agency's coverage to 49 states. Under the terms of the deal, which was concluded Dec. 29, 1996, Premier will officially change its name next month to Travel One Midwest.

Harrow said the industry will see a lot more agency consolidation in the year ahead among regional agencies because it is becoming tougher for them to compete without having sufficient critical mass. He will be looking to make other buys in the months to come and is looking for "like-minded companies in the $20 million to $100 million range that can offer us more regional distribution." In particular, he is looking at agencies in Boston.

Morris Travel, which reported $205 million in 1995 air sales, began the year by buying its second Portland agency, Accent On Travel, with total sales of $7 million. Steve Nielsen, Morris Travel executive vice president and general manager, said he has seen a marked increase in the number of agencies interested in selling since the commission cap. He anticipates making more acquisitions in the coming year in the areas where the company already has operations-Utah, Oregon, Washington, Idaho, Nevada and Montana.

Omega World Travel, which reported $413 million in 1995 air sales, acquired the $50 million Express Boyd travel subsidiary of NCR Ltd. at the outset of this year, as the first step of an acquisition strategy designed to make Omega "one of the largest travel agencies in the U.K.," according to Gloria Bohan, president and majority owner.

Bohan said she also expects to buy U.S. and Asian agencies in the next year, but she is initially keying in on London because some of her biggest clients are doing a lot of business there, and she is looking to grow her 25-year-old agency along with them.

Bohan said acquisition activity is increasing among midsize agencies because "the industry is at a crossroads with technology, in both the opportunities and costs involved." Many of the smaller companies are either not going to be able or willing to compete in the new environment, she said.

Associated Travel International, which reported $200 million in air sales in 1995, pointed to a strikingly similar approach toward management and the development of next-generation technology tools as the impetus for its late December acquisition of Sunbelt Motivation & Travel, which reported $66 million in 1995 air sales.

Sunbelt Motivation, the incentive division founded by Sunbelt president Bill Boyd, will continue its current ownership and will be unaffected by the acquisition. Boyd, who will get a title change to vice president and general manager to fit into the Associated Travel managerial structure, will remain in charge of the transient travel operation as well. He plans sales growth of 15 to 20 percent for Sunbelt.

Associated Travel, which put itself on the map in 1988 with its Aqua lowest-fare finder and quality-control reservation software product, also has developed travel analysis software for hotels and car rental, as well as sophisticated client-server booking and scheduling tools. Sunbelt caught Associated's attention when it recently introduced Cactus, a Web-based booking tool.

Associated Travel president Thomas Nulty said the move will give the combined client base access to the tech tools that megas offer with the personal attention afforded by a super-regional. "Although there will be minor adjustments in operations and a name change for Sunbelt, nothing else will change there," he said. "Their corporate culture is a carbon copy of our own.