Magellangate: a year on
By Steve Jones
A year ago this month, Magellan was a network at war with itself. Beset with internal division, the pillars on which it had been built over 10 hugely successful years — trust and transparency — were crumbling.
Just days before Christmas, Andrew Burnes told the market what only the Magellan board had known: Helloworld had entered into a heads of agreement to buy the group for an eye watering $32.5m. For Magellan’s near-on 100 agency members, it was an extraordinary shock. The announcement triggered almost two months of angst as members turned on management, and then on each other, amid an unsavoury row over the perceived greed of directors in taking the lion’s share of proceeds, and the deal’s lack of transparency.
Only after heated exchanges, legal threats from rebel agents — and twice being compelled to significantly raise the offer to agents — did then chairman Andrew Jones and managing director Andrew Macfarlane drag members across the line. Of Magellan’s 98 members, only one refused to sign the tabled three-year contract.
Yet it’s clear that the events of 12 months ago have left deep scars. Despite their newfound wealth, some are still riled by the sale, and how it was handled by a management team they trusted and respected. The departure of Andrew Jones, arguably the principal protagonist in the eyes of members, was mourned by few.
“I am still sick to my stomach a year later,” one agent told travelBulletin. “Our strength was our unity. But that has gone. There were so many ugly emails flying around between those members who didn’t want to make a noise and those who fought against it that I can’t see it recovering. Has there been any thawing in the relationship? Not for me. Sometimes I ask myself why did I take the money? We move on, but it will never be the same.”
While such simmering discontent may not reflect the majority view, several others continue to privately voice frustration at finding themselves back at Helloworld, a company (or previous incarnations of) they progressively left to join Magellan. And a sour taste persists at the way members splintered into opposing camps.
Critics of the deal stressed their robust stance was only partially concerned with what they regarded as the unfair distribution of cash. The key objection, they argue, was the absence of consultation and the behind-closed-doors process that decided their future. It was a process seemingly at odds with the self-proclaimed trust and transparent ideology on which Magellan was built.
“The Helloworld purchase of Magellan should have been one of the best travel industry stories. A windfall offer of $32 million should have richly rewarded all those agents who broke the mould to determine their own destiny. But there was an unedifying brawl as directors scrambled to take nearly all the money (and still ended up with about $17 million for themselves). All members should have feasted on the fruits of victory; instead many have been left with a nasty taste in their mouth,” said Kevin Dale, one of the founders of Magellan, now retired, who sold his shares in the company to Andrew Macfarlane for $750k only six weeks before the sale to Helloworld was announced.
Others though have a different view, with another agent suggested Macfarlane is “doing everything in is power to rebuild relationships”.
“Personally, I think everyone should get on with it. We all did well financially. It’s time for everyone to bury the hatchet.”
Personality issues aside, even the most fervent anti-acquisition members have accepted that little has changed under new ownership, with members continuing to receive 85% of overrides, while Helloworld retains 15%. And while Helloworld may negotiate supplier contracts, Magellan continues to strike its own deals with specialists who don’t have a relationship with Helloworld.
“I am sure we will start to see greater encouragement to sell preferreds, and you can’t blame Helloworld for that,” another veteran agent said. “But I am not seeing any aggressive push at all, nor do I expect any. The motivation for Andrew Burnes is the extra TTV from Magellan. It will enable Helloworld to hit growth targets which makes the overall business more profitable. But of course in 12 or 18 months’ time when the targets rise again, the pressure may increase.”
Macfarlane declined an interview request from travelBulletin, but issued a statement and clarified some questions via text message. He insisted the resounding feedback at the November conference had been positive.
“The team and I have worked hard on delivering what we promised to members at the time — that Magellan, as they knew it, would not change,” he said.
“There is no doubt that a year ago the picture was quite different. It was a shock to members, the timing was not good, right on Christmas. We needed to get in front of members and explain the reasons and the benefits which we did and then we needed to deliver, which we now have.”
Macfarlane added that Helloworld has recognised Magellan as a niche group that can drive different segments from other Helloworld retailers, premium leisure being one.
As for growth targets, Macfarlane said they vary by supplier but, overall, the group has “higher rates of return from untargeted override and more attainable targets for additional growth override”.
“Importantly, the aggregate result for Magellan agents determines our rate of reward so we still control our own destiny,” he said, adding that the recruitment of new members forms part of the strategy to boost TTV and achieve growth targets.
Magellan is planning a focus on “growth leveraging technology” in the year ahead including Helloworld’s ResWorld system and performance dashboards to better manage productivity and yield.
“The future has never been brighter for Magellan agents because they’ve got the best of both worlds,” Macfarlane claimed. “They remain part of a specialised group and can also now leverage the benefits of scale, and the capacity to invest, offered by a major industry player.
“We’ve done what we said we would and ultimately members will judge the group on those merits.”
Such a judgment will become pertinent during the course of 2020, when members start weighing up their options. To retain their lump sums from the Helloworld acquisition — $150,000, $270,000 or $510,000 — agents are locked in until early 2021. After that, it’s a free for all. And already the games are beginning.
“I had an email last week from a rival group asking for a meeting so they are already out and about,” one agent revealed. “Despite the upheaval last year, I don’t think anyone can say that Magellan has fundamentally changed. Not yet anyway. But most of us are reserving judgment, And that is only prudent.”