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Pestronk Mark
Q: My top entertainment agency is doing great this year. In fact, we are on track to match or exceed 2019 sales and profits. I’m ready to retire, so I want to know if this is a good time to sell or should I wait another year or two to make sure we have a good financial result for a few years? If now is a good time to sell, what price and terms should I look for?
A: The best time to sell is after a year of good financial results and taking the necessary steps to prepare your agency for sale. That time may be now.
Although many financial advisors and consultants advise that you should take the average of the last three or more years of financial results, I find the guideline useless for two reasons: first, in the travel business, 2020 and 2021 are so unusual that on average they produce a bad skewed result in this year; And second, the most experienced travel agencies only refer buyers to the most recent 12 months of results when pricing their offerings.
The last 12 months are called the “trailing twelve months” or “TTM” in merger and acquisition parlance. Note that TTM does not necessarily have to be a calendar year, so you should be able to produce an income statement (profit and loss statement) when asked for TTM.
Experienced buyers usually prepare their valuations and present their prices as a multiple of TTM return on profit (known as “cash flow”). “Recurring profit” means the net income on the income statement and the personal type, depreciation, tax and one-time expenses on the income statement after deducting one-time income items such as PPP payments.
By “personal type” I mean expenses that benefit the owner only and that a larger agency does not allow as expenses, such as owner-only life insurance and personal automobile expenses.
The multiples that buyers use will depend on the conditions of the buying market and the size of your agency: the hotter the market and the larger the seller, the higher the multiple. In the year In 2019 and today, multiples have reached three to six times the TTM recycling rate.
Of course, pricing is only half of the procurement process. Another, potentially more important option is to set up half payment terms. Before the pandemic, payment terms were often fixed, that is, not dependent on future sales agency or book of business revenue.
During the outbreak, the opposite occurred: payment terms were often described as revenue-generating, that is, fees were primarily a percentage of the selling agency’s or book of business’s revenue, sometimes combined with a down payment.
Today, I’m seeing that discounts are often a combination of fixed fees and income. For example, the price can be four times the TTM restocked profit, and the price is paid as fixed fees of 30% and 70% in revenue.
Remember that my examples are only generalizations; Your offer may be higher or lower.
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