Cuts Fuel Agency Consolidation Fire
<B> Cuts Fuel Agency Consolidation Fire</B>
By Sarah Welt
Acquisition activity is rampant in this, the traditional height of the buying and selling season for travel management companies, and travel agencies of all sizes are looking to make deals.
The big players want to get bigger in order to use economies of scale to gain purchasing power and invest in technology, and the smaller ones are trying to gain critical mass to stay afloat in an increasingly competitive business.
Indeed, insiders and analysts agree, 1997 proved to be a booming year for agency acquisitions--and 1998 seems destined to follow suit. Many credit United Airlines with touching off a chain reaction of commission cuts that quickly became a major factor in acquisition activity. The cuts also caused some agencies to simply close down.
Some suggested that U.S. Office Products' 1997 buying spree also played a role by raising the ante in prices being offered, though most industry insiders disagreed. Instead, they said, "The price is right" was a frequently heard echo in '97.
Several agency players said agency prices went down, no doubt as a result of the commission cuts. Said Jeffrey Miller, a travel industry attorney based in Ellicott City, Md., "Agency prices are down from what they were pre-October, pre-September, there's no question about that." Miller added that he's had several clients who closed their doors for good in 1997. "The industry has changed so much it's hard to make a buck for a lot of people."
Acquisition activity levels in 1997 were up 15 percent over the previous year, according to Bob Sweeny, president of Roswell, Ga.-based Innovative Travel Acquisitions Inc. Sweeny said most of the activity is a result of the commission cut and "the overall adversarial attitude of the airlines that is just grinding people down."
Sweeny cited other reasons for the feeding frenzy. "It's not fun anymore. Unemployment is 2 percent so people can walk across the street to get a job and tell the owner to go jump in a lake." Travel agency staffers and owners are working longer hours and making less--"and that's not a good combination," he said.
USOP certainly seemed to have no trouble finding willing acquisition candidates. Bursting onto the travel scene by acquiring $1.4 billion in air sales in '97, the office products giant has been in a virtually continuous acquisition mode. Ed Adams, president of USOP's corporate travel division, said he has eight to 10 acquisitions in the process of closing in the next six to eight months.
Rosenbluth International scored its own coup with its recent acquisition of Philips' company-owned travel agency, Philips Reisbureau B.V. (See story, page 1.)
The $750 million Atlanta, Ga.-based WorldTravel Partners started off the new year by closing a deal to acquire Northwest Travel, a $25 million agency in Columbus, Ohio, on New Year's Eve. The acquisition is part of WTP's plan to build up its infrastructure in the Midwest.
Danny Hood, newly promoted to president of WTP, said Northwest's owners Greg and Cathy Bedell (who themselves were executives of Wagonlit Travel before it was acquired by Carlson to form Carlson Wagonlit), will participate in a "unique formula" in agency acquisitions. Because WTP is a limited liability corporation and all deals involve some equity, they will come in as minority partners. WTP also wanted the deal because the Bedells were "already past users of our technology--something we look for strongly," Hood said.
WTP just submitted its three year plan, which inclues a goal of acquiring $250 million more in business in each of the next three years. "We are going to grow significantly through acquisitions," Hood said, rather than focusing on growth through sales and marketing, as in the past five years. With new business, the company is growing at a rate of 34 percent. WTP is currently working on acquiring five agencies in the $25 to $100 million range, Hood said, and expects to close two of those deals by the first or second quarter.
Travel One, in Mt. Laurel, N.J., expects to boost its current U.S. air sales of $800 million by acquiring two to four agencies in the $50 to $250 million range, including one in the Los Angeles area. The company is targeting Chicago and Boston as well as "solidifying some of the markets we are already in," said president Jeffrey Harrow, by focusing on "well run companies that are finding it difficult to compete" in the current environment. Charles Roumas, senior vice president of strategic planning, added that Travel One is also looking at "the U.K. and the rest of Europe," with a goal of being a billion dollar agency by the year 2000.
Linda Garback, president of Troy, Mich.-based Total Travel Management Inc., with air sales at $358 million, said that agency, too, "is in the process of closing an acquisiiton within the next 30 days." She said the agency being acquired ranks in the top 75 agencies according to BTN's annual survey (<i>BTN</i>, May 26, 1997), and since it is in the Southeast it will help Total Travel gain entrée to both that region and to the South American market, where it has an existing customer base.
Total Travel also hopes to close another deal in the first quarter--an agency in the Mid-Atlantic region "in the top 50 agencies" on BTN's list. Garback said the commission cuts have reduced the value of travel agencies "generally by 20 percent."
Cambridge, Mass.-based Aquarius Travel, with current air sales at $200 million, expects to close on two "fairly large regional travel agencies in northern California," president Domenic Pugliares said. Additionally, the company is looking at acquisitions in Seattle, Portland and Massachusetts, and "starting to talk to someone in Texas." Aquarius' strategy is to focus on what it calls "the technology triangle" of Massachusetts, northern California and Texas. "With all the acquisitions planned, I don't think we'll have any trouble getting in the $300 million range this time next year," Pugliares said.
Direct Travel Inc. of Manhattan is "entertaining seriously" two deals in the $20 to $30 million range, said president Herbert Edelberg. The agency is looking at the Southeast and the West Coast, and hopes to close its bigger deals by June. Smaller acquisitions are planned to close in the next 60 to 90 days.
Adelman Travel Systems Inc., based in Milwaukee, Wisc., began 1998 with the acquisition of the $8 million Denver-based Colorado Connections Travel. With $100 million in air sales, Adelman is looking to find "corporate travel agencies with some onsite presence, since that's our core business," said CFO Bob Chaiken. Two acquisition deals, one in the Midwest and another on the West Coast, are in the works, with $30 million and $15 million agencies, respectively.
The $90 million Stevens Travel Management in Manhattan is taking a different tack with the "Profit Plus Alliance" it will roll out in the next 30 to 60 days. Geared toward tristate agencies in the $2-$20 million range, the program allows smaller agencies to leverage Stevens' negotiating power and automation without having to actually sell out.
"We'll buy or merge them in, or they can operate on their own site or one of our sites," Stevens said. Under a recent ARC ruling (see Inside Track, page 4), another agency could piggyback on Stevens' facilities "with its own ARC number and get the benefit of economies of scale." The PPA program also will offer accounting and marketing services to clients.
Stevens said the company also is looking to acquire, merge or partner with agencies above $20 million in volume.
Casto Travel Inc., based in Sunnyvale, Calif., has $150 million in U.S. air sales. As of New Year's Eve, it planned to acquire a meetings and incentives company worth $20 million. Casto also is planning an agency acquisition in the $50 million range for the second quarter.
The Coral Gables-based Around the World Travel Inc., a Carlson Wagonlit Travel franchise, recently acquired Atlas Travel Management, a $16 million Coral Gables agency, bringing its air sales to $95 million.
Global Travel, based in Boise, Idaho, has an aggressive acquisition strategy for 1998. The $70 million agency just closed a deal with Becks Travel in Lewiston, Idaho, to buy the $5 million agency's accounts. Additionally, Global has reached a verbal agreement with a California agency that would "almost double our size in Boise," Gary Coats, Global's vice president and general manager, said, and is looking at an agency in Washington state.
While acquisition activity abounds, some agencies are keeping mum or deciding to hold off on deal making for the time being. SatoTravel, the airline-owned mega agency based in Arlington, Va., would not comment on any acquisition plans, though one industry source told BTN their agency was approached by Sato to solicit a bid, and industry rumors are rampant.
At Morris Travel in Salt Lake City, the $150 million agency "went from aggressively acquiring to deciding to take a back seat and doing what we can to be profitable," said president and CEO Mark Slack. "With the commission cuts, we want to make sure everything is working fine.