When Adventure Travel Trade Association (ATTA) President, Casey Hanisko, asked if I would write an article on Mergers and Acquisitions (M&A) to share with the ATTA community, I jumped at the chance and honestly feel a bit honored. The ATTA has been such a big part of my professional life in adventure travel and in my M&A experience. It’s all quite fitting, as no less than four of our acquisitions came as a direct result of networking at ATTA events.
I began my career in adventure travel with the acquisition of a tour operator back in 1995. That first transaction set the course of many more to come; I’ve led some 20-plus transactions to date–everything from 100% stock purchase to 100% asset sales, and much in between. To say I learned something with each transaction is an understatement. Now I feel like have an opportunity, if not an obligation to share some of these key learnings with others as they head down the M&A trail.
Let’s start by discussing the difference between mergers and acquisitions, and looking at a few of the main reasons it might be time to consider one of these business strategies.
Mergers and Acquisitions
In short, a merger is when two (or more) separate entities combine to create a new organization with elements of each of the old ones. An acquisition refers to the takeover, usually in the form of a purchase, of one entity by another.
There are both personal and professional reasons to sell a business. Regardless of whether you are a Buyer or a Seller, the hardest decision you will make is simply “is now the right time?”
Because a merger maintains elements of both organizations, often combining the best of each like staff, resources, and products, both businesses generally benefit in some way. This makes it a good option for organizations looking to continue on but to grow by bringing together strengths from multiple sources.
- #1 Reason: RETIRE
- Health of Owners
- Financial Gain, Diversify Investments
- Minimize or Eliminate Risk
- Reduce Stress and Time Investment
- Capitalize on Momentum (selling at the right time)
- Changing Market Conditions
- Lack of Adequate Working Capital
- Provide New Opportunities for Employees and Staff
- That Feeling you Have Taken the Business as Far as it Will Go
- Increase Gross Revenue and Market Share
- Consolidate “backroom” Activities and Improve Gross Margins
- Expand Geographic Reach
- “Take Out” Competition
- Acquire Key Staff With Important New Skills
- Increase Marketable Database
- Vertically Integrate
- Extend Annual Product Offerings
- Media Attention and Awareness
Once you make the decision to buy or sell, the real work starts–finding the right buyer, seller, partner, investor, etc. But first, you need to get to a place where you feel good about your direction. Don’t be afraid to have open and honest conversations with friends, family, and associates. It’s your decision but talking it through will help you determine what might be right for you. Just remember it’s all on you after you pull that trigger. It may sound obvious, but a good old-fashioned pros/cons list is a great place to start.
Stocks and Assets
Let’s start by focusing on the key question that must be asked early on, regardless of whether you are buying or selling–will you be making a stock purchase or an asset purchase? The answer to this question is the biggest decision either the seller or the buyer will have to make during the process.
I should be clear; this is where you really need good legal and accounting advice for your specific and personal situation. Having gone through M&A many times on both sides of the equation, the following is meant to educate based on my own personal experience.
Generally, buyers prefer asset sales, whereas sellers prefer stock sales. An asset sale is the purchase of individual assets and liabilities, whereas a stock sale is the purchase of the seller’s shares of a corporation (including all liabilities, known or unknown).
Stock Purchase Overview
A stock purchase is often a much easier transaction than an asset purchase. In most cases, it is a less complex and often quicker transaction. The Acquirer buys the stock (all or a set amount) of the selling corporation as it stands, specifically regarding both assets and liabilities. Contracts, commitments, vendor relationships, leases, permits, etc. transfer in full at closing (often automatically) to the new owner. The business entity continues with the least amount of disruption.
Stock Purchase Pros
- Buyer doesn’t have to go through extensive valuations or retitling of assets.
- Buyers typically can assume non-assignable licenses and permits without having to obtain consent.
- Buyers can often avoid paying transfer taxes.
- Employee contracts remain in effect without unnecessary change.
Stock Purchase Cons
- Buyer cannot handpick assets or assume specific liabilities; It’s usually all or nothing.
- All assets and liabilities transfer at the carrying value; no adjustments can be made.
- Specific attention and additional separate agreements must be made for any unwanted liabilities.
- Particular care and attention must be given to security laws and all shareholders must agree on the transaction.
- Goodwill is not tax-deductible if it exists as a share premium price.
- Lawyer fees can be extensive as “Buyer” will need to insure protection from past actions.
Asset Purchase Overview
With an asset purchase, the seller remains the legal owner of the entity, while the buyer must clearly identify all assets and liabilities of the company they wish to acquire. Things such as equipment leases, permits, customer lists, etc. do not automatically accompany the sale.
Asset sales typically do not include the transfer of the business cash and the seller typically retains its long-term debt obligations.
Normalized net working capital is typically factored into an asset sale agreement. One must consider accounts receivable, accounts payable, and inventory as a start.
Asset Purchase Pros
- Significant tax advantages to the buyer that can “step up” the basis of many, if not most assets over current evaluations hereby obtaining tax deductions for depreciation and/or amortization.
- Goodwill can be amortized on a straight 15-year basis for tax purposes. (In a stock purchase deal, goodwill cannot be deducted until the stock is later sold).
- The buyer can do a deep dive on all assets and liabilities and pick and choose what they wish to retain. This limits the buyer’s risk to unknowns.
- Because the exposure to unknown liabilities is limited, the buyer can spend less energy and funds on costly due diligence.
- Buyer does not have to work with minority shareholders as they will be forced to accept the sale.
- All employees must be “laid off” and then the buyer can decide who to retain and renegotiate wages with.
Asset Purchase Cons
- All contracts with customers and or suppliers will need to be renegotiated.
- The tax impact to the seller is typically higher, possibly driving up purchase price.
- Contracts and/or permits may not be transferable.
- All assets will need to be retitled.
- Employees may “renegotiate” higher wages.
- The seller will need to “deal with” anything and everything not purchased in the sale.
- Seller may be liable for unknown past claims or liabilities.
I am confident there are dozens of additional pros and cons to each “deal.” Every single one is different. No two “deals” are the same as no two buyers/sellers are the same.
Conversations on whether acquisition will be made via stock or asset purchase need to be had early in the process and all parties must tentatively agree before moving forward. One type of purchase over another can easily be a deal-killer for either party.
Again, this is not legal or accounting advice, but simply my observations and the place to begin once you start to consider buying or selling.
Dan’s M&A Transactions Over the Years
Next up, we will have some fun and look at a few of my transactions (and of course the mistakes made!)
The best place to start is at the beginning. Back in 1994, I was looking for a “side hustle” to complement my construction company. Perusing the local newspaper, I saw an ad that caught my eye. “Do you like adventure? Hiking and Biking? The great outdoors?” The answer was a resounding yes, of course. This started a deep dive into the adventure travel industry, including secret shopping the company as a guest. My wife and I joined a multi-day, multisport trip to the Grand Tetons. It was love at first sight! My hesitance on group travel at the start all faded away on day one. We had great traveling companions and the guides made the logistics of the trip so smooth and seemingly simple. We returned home and crafted our offer.
This was just the beginning. But what did I learn in this first transaction? Oh, the list is long. Here are a few of the Pros and Cons of my Backcountry Tours acquisition and my takeaway.
1994: Acquisition of Backcountry Tours
- Great company foundation
- Great staff
- 10 years of equipment
- Loyal alumni following
- The challenge of using a business broker that knew nothing about adventure travel
- The sellers handing over the keys at closing with little training or insight
- Dysfunctional partnership (5 partners)
- “Systems” lacking or dated
My biggest takeaway in a nutshell: Always allow for some level of smooth transition with a seller. Know what you are getting into and with whom. Do not let the idea of entering a sexy business cloud your judgment or efforts.
1998: Sold Backcountry Tours to 3 of the 5 partners
1998: Founded Adventures Plus
1999: Bought Backcountry Tours Back
1999: Austin Lehman Adventures Partial Stock sale of my company (then Adventures Plus) to an outside party
- Added much-needed cash to the business
- Did not bear sole responsibility for the company
- Sold 51% of company (controlling interest) to unknown individual
- Dysfunctional partnership (goals for the company (and how to get there) didn’t align
Key takeaway? A good friend taught me years later, “There is nothing more worthless than a minority stake in a privately held company.” Partnerships are like marriages; they don’t all workout and it’s best to know who you are marrying well in advance of getting into bed. To be clear, there are some really good partnerships out there. Also like a marriage, it takes two to work or fail, it’s not all on one.
2000: Merged Adventures Plus and Backcountry Tours, changed the name to Austin Lehman Adventures
2008: Austin Lehman Acquires Eurobike Tours
- Opened up a new region
- Amazing, experienced team and management
- Dozens of itineraries (still using today)
- Solid customer database
- Respected brand
- Not really any “big ones”; however, we did overestimate customer loyalty and co-marketing opportunities
- Underestimated how long the transaction would take
Key takeaway? Acquiring a solid 30-year-old brand takes time and effort. Aligning product and values is a serious endeavor that won’t happen overnight. Be sure to keep vital elements of the brand. Keeping key management is the biggest asset (I love the owner of Eurobike, Ron van Dijk, to this day).
2010 Austin Lehman Adventures, Dan buys out partner & creates sole proprietorship
- Sole Proprietor!
- Drive the ship as seen fit!
- Newfound energy and passion for the business
- The buck stops here
- None! (Okay, maybe there were some downsides, but far outweighed by upsides)
- Sole financial burden (not a bad thing really)
Key learnings? Don’t stay in a dysfunctional marriage, ahem, partnership! They rarely get better and life is just too short.
2011 Acquired CBT Tours
2012 Acquired Go South Adventures
2013 Austin Adventures Sale to a Corporation
- Talented support team
- Eliminated cash flow concerns
- Less stress (well, it created a different kind of stress)
- Part of a bigger team and company
- Gave up full control
- Asset sale, should have been a stock sale
- Joined Corporate America
So, what did I learn? First was the importance of knowing which is best: Stock or Asset purchase. This was a big mistake. Past that, I knew what I was getting into and was okay with trying something different. The company was no longer my baby!
2017: Bought Austin Adventures back
2020: Acquired Wildland Adventures
2021 Austin Adventures Sale
- Sold the stress of the post-COVID fallout
- Solid support team behind the scenes
- No longer having to make every decision
- Stronger on all fronts
- Still on the Honeymoon
- All outweighed by the positives
That’s just a few of the highlights of this wild and crazy adventure. I get asked all the time what is the most important thing when considering a Sale or Purchase, Merger or Investor? There really is no easy answer and no two deals are alike. If I had to focus on one thing it would simply be to think through all the nuances of the transaction. Don’t assume anything. Know what you are getting into and make sure it is 100% right for you. TAKE YOUR TIME.
My role going forward is one I am excited about. I get to use all my years of experience and passion for the industry to help others navigate the challenges of M&A. I stand committed to the industry and its players to make a difference. I’m happy to serve as a resource for anyone and am available to discuss any and all M&A questions or challenges. Simply email me at [email protected] or give me a call 1-406-671-6067. I am here for all!