Consolidation Trend Hits Regional Agencies

<H1> Consolidation Trend Hits Regional Agencies</H1>By Stefani C. O'Connor

First, there were the mega mergers; then there were the super-regional regroupings. Now, in its current incarnation, the industry's tilt toward agency consolidation has reached the regional level.

Although some observers had predicted that smaller agencies would be among the first to severely erode following the commission cap, the recent flurry of corporate travel agency purchases may be signaling a rise in mergers and acquisitions by travel management firms-particularly those seeking to bolster their volume and reach in a more direct manner than sales growth.

The greatest movement is being seen along the eastern seaboard and in the Midwest, with a number of agencies in the $10 million to $20 million range being shuffled.

Among those agencies that are part of the consolidation trend:

<H1></H1> New York-based Direct Travel, itself the subject of much industry speculation last year when it was said to be in the acquisition sights of Rosenbluth International, bought Going Places Travel, a $12 million agency in Boston. The purchase will give Direct, with an estimated $145 million in air volume for 1995, immediate entr&eacute;e into the New England region.

<H1></H1> Wright Travel, Nashville, increased its annual sales to $115 million with the acquisition of Emmer Travel, a $10 million corporate agency in Gainesville, Fla., marking its sixth office in that state.

<H1></H1> Gant Travel Management in Chicago bought the $17 million Travelmasters Inc. in nearby Arlington Heights and indicated it is ready to acquire more.

Overall, agency ownership changes have remained flat. The past five years have seen about 1,800 ownership changes per year, according to Robert Sweeney, president of Innovative Travel Acquisitions, an Atlanta-based agency broker. This year, that number that will be closer to 1,300. "But many have just defaulted or folded up, so there's no actual ownership change," he said.

But with much of the heady post-cap buy-sell market now stabilized, the recent surge in activity is being looked at in a new light. "It's been delayed response," Sweeney said. "It's more than a year since the cap, and we are seeing increased activity; I thought we'd be seeing it over six months ago."

This hesitation on the part of agencies is an attitude that is inconsistent with the industry's current environment, Sweeney said. "In this market, if you're just going to hold, that's a slow death, and unless you have a niche, you have to be the hunter or the prey."

The decision to be proactive rather than reactive is what drove Wright Travel president and CEO Pamela Wright to push the envelope on her expansion goals, and she considers acquisition a viable method of growth for her company

"My answer would have been different five years ago," she said. "All of our growth had been opening in new markets. Because the industry has become so competitive, it's very difficult to get the return on investment when you're building from the ground up. It's much easier now just to do acquisitions; I think the return on investment comes much faster."

Wright made her first acquisition last year with the purchase of The Travel Connection, a $20 million agency in Ownings Mills, Md.; Emmer Travel was the second. Part of Emmer's attraction was its extensive work in the group market, as well as leisure, Wright said.

But with a 90 percent corporate client base, Wright does not intend to change her business direction to be more leisure oriented, an expansion tactic some corporate agencies have been employing as the industry changes. Wright said her focus will be on buying more agencies, and she is in discussions with several firms.

"Savvy agency presidents are always on the lookout for a good book of business because it's easier to buy than earn," agreed consultant Tom Wilkinson, president of Travel Management Group, Arlington, Va. "Everybody views the end of a small business as a sad event, but usually it represents an owner getting a substantial amount of money for a business they have painstakingly built over time, and they are selling their book of business which has value to a larger entity."

To keep that value, agencies looking to buy need to look at how a purchase will enhance their firm, and they should operate within parameters in which they have had success, said Innovative's Sweeney. "When agencies say they are going to develop other sources of revenue, they can't just flip a switch, buy a leisure agency and say, 'we were corporate, now we're leisure,' " he said. "They need to synergize their purchase."

At Direct Travel, agency president Herb Edelberg believes his acquisition of Going Places Travel, an agency with a 70-30 mix of corporate to leisure, will suit his expansion initiatives.

"This is the first acquisition for Direct where we have used it as an immediate entr&eacute;e into a new region," said Edelberg. He said it would be an "interesting opportunity for Direct to test the waters on a retail basis," because Going Places is a walk-in agency with heavy pedestrian traffic.

Edelberg viewed the buy as strategic to his company's expansion. With locations in the New York metro area, the West Coast and the Midwest, Direct will continue to target the largest primary commercial business centers "very aggressively" for acquisitions, he said.

"For the long term, our growth has been via self-generation of business through our internal sales team," Edelberg said. "We are now recognizing opportunities in the acquisitions market in view of the industry climate. With the challenges of automation, information and technology, smaller agencies also are faced with the challenge of significant investment dollars and the need for expertise not always available to them. We can leverage our investment in tech systems, our senior management depth and infrastructure to make a logical and attractive opportunity for the seller and the buyer."

For Todd Taranto, president of Gant Travel Chicago, a division of Gant Travel Management, the purchase of Travelmasters marks the third major acquisition by the company in as many years.

With a $60 million client base, two-thirds of which is derived from its Chicago operations, Taranto expects to push for economies of scale in incorporating the agency. "If we're going to grow and get the revenue side through the acquisition, the only way for us to continually compete is for us to reduce the cost per transaction, and that means reducing and making our operations more efficient. We don't believe you can drive the amount of growth you need to survive in this industry through a sales force," he said. "It's too expensive to have a sales force of the size that you need to do that, because the cycle time for selling an account is too long and the ROI is too small."

Taranto said that sometimes his agency competes for business with large agencies such as McCord, Arrington, BTI and American Express, and "we'd rather gain those accounts through acquisition. It's quicker to grow at a rate that's enough to outpace your competitors if you can purchase the agency."

Although opportunities might be heating up somewhat in eastern regions, those expecting to benefit via acquisition at the opposite end of the country are cautioned that the market is expected to remain flat.

George Saunders, president of The Thorndyke Group, a Tacoma, Wash., firm that specializes in agency evaluations, said the buy-sell market has stabilized in that section of the country because of a strong economy.

But he noted that the outlook might appear static because "a lot of people in the smaller agencies are kind of burned out and want to get out of the business. But there are just as many people who want to get in.