Just what is an Australian retail travel agency worth?

Helloworld's revelation of the purchase price for Adelaide's Phil Hoffmann Travel this week provides an intriguing insight into the cash value of a high-performing network of travel agencies in today's recovering market.

THE announcement some months ago that Helloworld Travel Limited would acquire a 40% stake in iconic SA-based travel retailer Phil Hoffmann Travel (PHT) cemented the longstanding relationship between the organisations. The company’s eponymous founder agreed to offload much of his personal holding to Helloworld, which noted the business is “one of the most successful retail travel operations in Australia”.

Phil Hoffmann, founder of iconic South Australian travel agency group Phil Hoffmann Travel.

Phil Hoffmann established his agency in 1990 and now in his mid-seventies he undeniably deserves the opportunity to step aside after 33 years – although he’s currently keeping 10% of the business, which Helloworld has the option to acquire over the next three years. PHT CEO and Director, Peter Williams, retains the remainder of the group – a stake accumulated over the years as part of a longstanding succession plan which saw him move to 50% ownership in 2014.

However the initial release announcing the Helloworld acquisition of Phil Hoffmann Travel left out some critical details – most particularly, what the actual price was.

That information gap was finally filled earlier this week with the release of the Helloworld Travel Limited annual report, which confirmed that after last Friday’s eventual (and somewhat delayed) settlement of the deal Hoffmann received $3 million in cash and a further 479,781 Helloworld (HLO) shares worth $1.4 million.

That $4.4 million total provides some intriguing metrics into just what a high performing travel business is worth. While PHT is privately held, over the years some information has been published which gives an estimate as to the revenue of the operation. In July 2014 the company acquired two former Harvey World Travel outlets in the Barossa Valley and Gawler, boosting its overall network across South Australia to nine in total – and at the time Williams noted the deal saw staff numbers jump to 210 after posting record TTV of $127 million in 2013/14 which reflected an 11% annual growth in sales.

In 2016 a report on top South Australian businesses placed Phil Hoffmann travel in 36th position with revenue of $148 million, while Hoffmann and Williams have both previously confirmed aspirations to surpass $200 million in TTV by 2020.

Of course the pandemic will have played havoc with those figures, but nevertheless with many industry businesses reporting unprecedented demand particularly in the last six months of 2022 as borders opened, one would have to assume that PHT is once again trading at levels approaching 2019.

So what can we deduce from Hoffmann’s $4.4 million payday? Firstly, since that was for 40% of the business we can confidently assume that Helloworld’s bean-counters believe that 100% is worth $11 million. And based on the various ASX announcements about the deal, that figure was calculated based on “an FY23 EBITDA multiple of approximately six times forecast earnings for PHT”. Extrapolating that out indicates that HLO believes Phil Hoffmann’s maintainable profits, excluding tax, interest, depreciation and amortisation, amount to just $1.83 million a year (one-sixth of the $11 million total valuation).

Clearly scale is important – PHT continues to operate nine branches across South Australia, and perhaps conservatively estimating its TTV at $180 million based on those previous statements, that would indicate each of those on average is turning over $20 million a year (although the business also has a strong corporate presence and pre-pandemic ran many of its own group departures). But if that is the case, the company is only retaining about 1% of its TTV in actual profit. Phil Hoffmann Travel has more than 150 staff and of course leases on all those premises, and to me the figures clearly indicate the difficulty of extracting high margins from retail travel businesses particularly as suppliers (mostly airlines) continue to reduce trade commissions.

There is some potential additional upside for the eventually exiting Hoffmann, who may receive “contingent consideration” of a further $800,000 if PHT achieves some higher earnings targets in the 2024 or 2025 financial years. And as an aside, the deal also gives Phil Hoffmann Travel CEO Peter Williams the opportunity to ultimately take money off the table, with an option allowing Helloworld to acquire the rest of the business at some stage between 2028 and 2033.

Phil Hoffmann Travel has long been one of APT Travel Group’s biggest sellers.

Phil Hoffmann himself is no stranger to making deals, and over the years has had his fingers in many other travel pies. He was one of the founding shareholders (alongside Steve Lloyd and Kevin Dale) of the Cruiseco consortium, which was acquired in stages by APT parent Australian Pacific Holdings and then onsold to Helloworld during the pandemic. He’s also held stakes in travel industry recruitment firm TMS Asia Pacific, has shares in an Asian media organisation, and who knows what else. So the new partnership with Helloworld Travel will be a familiar situation for him.

And while that $4.4 million probably feels like a lottery win, I’m betting he’ll have to pay a lot of tax, and perhaps discharge some debts likely run up over the last few extremely lean years. Mind you, the shares he received as part of the deal are also now well and truly showing some upside, with the $2.91 price last Friday climbing to $3.20 today after HLO’s healthy results announcement – an instant paper profit of about $140,000.

As you’d expect from someone so dedicated to the craft of selling travel, Hoffmann isn’t going anywhere, but hopefully this deal with Helloworld will at least help him to slow down a little. And perhaps the industry also now has somewhat of a benchmark for travel agency valuations, although the six-times multiple being paid by Helloworld is typically something only seen when selling to a publicly listed entity.

There are many reasons we all work in the travel industry, and to me the price achieved for this sale indicates that making a motza probably isn’t one of them!

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