Travel M

1
Travel MA

• AKA channeling your inner Gordon Gecko

2

• Framework

• Focus for presentation is
• Why Buy? Aka Assimilate or Conquer
• TMC Valuations aka You want how much?
• Terms of purchase aka Show me the Money!
• Due Diligence aka Swimming naked with sharks
• Sample acquisitions
• Lessons learned

3

• Conquer vs. Assimilate

4

• You want how much?

• Methods of Valuation

1. Ask the owner method
2. Percentage of Sales
3. Multiple of EBITDA (Earnings Interest
Taxes Depreciation Amortization) x
Multiplier (2x to 5x) Implied Value
4. Multiple of EBITDA plus/minus exceptional
items - Owners compensation - Value of
Assets - Discontinued business lines - Advanced
earning potential due to synergies - Integration
costs - NPV of future revenues
5

• Payment Upfront

• Earnout

• Payment made by acquirer at the time of purchase
  based upon agreed valuation. Can be in cash
  and/or stock.
• Good can lock in a key target
• Good GDS will often front some of the money.
• Bad Do you have the money on hand?
• Bad Acquirer has 100 of Risk.

• Payment paid in installments, generally based
  upon performance.
• Good Funded by acquiree's operations
• Good Shared performance risk.
• Bad Many acquiree's need the money now.
• Bad Can be deal breaker

Special Note Who gets Accounts Receivables
and when?
6

• Swimming naked with the sharks

• Things to consider when conducting due diligence
• Do their books balance?
• Are there any outstanding future obligations?
  Is the A/P figure accurate? What about Debit
  Memos?
• Will key suppliers bless the transaction? Do
  you need them to?
• Any lawsuits? Is company in compliance with all
  applicable laws?
• Any employee grievances? Are grievances filed
  by key employees?
• Are clients under contract? Since they likely
  arent, what is strategy to retain them? Do
  their clients like you?
• Why does the owner really want to sell?

7

• Case Study 1 RegionalTMC

• Location Same area as your primary location
• Air Volume 10,000,000
• GDS Different GDS, 1 year remaining. Nominal
  (if any) GDS revenues.
• Corporate/Leisure split 50 Corporate, 50
  Leisure. Almost all Leisure done by Independent
  Contractors.
• Airlines Number 1 airline is preferred carrier.
  Overlap for number 2.
• EBITDA margin (2008) 12
• Sales decline in 2009 35
• Profitable to date in 2009 No
• Leases 2 years remaining. Average lease cost of
  1.75 sq ft/mo.
• Management Team Family owned, principal wants to
  stay for indeterminate time.

8

• Case Study 2 Super RegionalTMC

• Location Outside of your core area
• Air Volume 85,000,000
• GDS Your GDS with 3 years on contract. Net
  revenue/segment 1.70
• Corporate/Leisure split 95 Corporate, 5
  Leisure
• Airlines Number 1 airline not preferred carrier.
  Overlap for number 2.
• EBITDA margin (2008) 8
• Sales decline in 2009 20
• Profitable in 2009 No
• Leases 4 years remaining. Average lease cost of
  2.00 sq ft/mo.
• Management Team 3 partners in equal shares, 2
  want to stay.

9

• Lessons learned

1. Very clear agreement with prior owners on what
   responsibilities will beand what they wont be.
2. Due diligence in all deals.
3. Excessive communication with new employees.
4. Know when (and how!) to cut losses.