The purchase and sale of vacation rental companies continues to be the most effective way to increase inventory and grow the value of an existing operation. If you are a vacation rental manager considering purchasing or selling an existing operation, we have several recommendations to help you get the most out of this time-consuming and difficult process. Fundamentally, the purchase or sale of vacation rental companies requires a process that involves careful planning, preparation, professional financial reporting, proper understanding of market-rate terms, and negotiation expertise. Company owners and senior management personnel who are unfamiliar with purchasing and selling can make common mistakes that result in less favorable deal terms, lost purchase price value, or an unsuccessful transaction altogether.
- Not having a professional non-disclosure agreement—or not having one at all. Often, company owners engage in conversations about or entertain offers to purchase their business without the use of a non-disclosure agreement. Do not engage in any conversation without utilizing a professional non-disclosure agreement. If you are asked about the prospect of selling, it is reasonable for you to mandate the use of a non-disclosure agreement before moving forward. Professional non-disclosure agreements include a term, non-solicitation provision, and clear legal terms surrounding confidentiality to help protect all parties involved.
- Not having professional financial reporting. Financial reporting continues to be the Achilles’ heel of most vacation rental operations. Not having an accurate or consistent property management system and/or financial accounting reports indicates an unorganized business and will often lead to a lower purchase price or value of the operation. In many cases, a purchase price dramatically decreases if the business is not clearly articulated through the financial reporting process. Use of well-constructed, clear, and correct reporting underscores the worth of an operation and helps to ensure the maximum purchase price is realized.
- Not hiring a transaction consultant. If you are relying on the buyer to provide a fair price and deal terms, expect to be disappointed. In numerous cases, a transaction consultant with vacation rental-specific experience can generate tremendous value. A qualified vacation-rental transaction consultant can drive the deal process, provide access to market-rate terms, and ensure that all points of the deal are fair and reasonable. Transaction consultants will do the following:
- Prepare a confidential offering memorandum that conveys the qualitative and quantitative attributes of the business and serves as a foundation for value.
- Present the opportunity to qualified buyers and provide a keen understanding of prospective buyers who have the wherewithal to close a transaction.
- Showcase a wealth of knowledge, hold extensive industry contacts, and assist in negotiations.
- Present comfort for buyers who might otherwise hesitate to pursue the purchase of an unknown entity.
- Not hiring the right legal counsel. A general business attorney is not typically familiar with the nuances of a vacation rental company. Further, the vacation rental industry is unique as a buyer does not typically purchase assets. Legal counsel should understand the legal terms associated with these types of transactions and hold experience with earned revenue, advanced deposits, and business operations. Lack of expertise in these areas creates significant issues when negotiating a successful transaction. Lastly, having a well-drafted purchase agreement reduces risk and ensures expectations are met on both sides of the transaction.
- Not having patience. In certain cases, buyers or sellers get emotional during the transaction process. Emotional outbursts, heavy-handed dealing, or the need to over-negotiate deal terms increases the likelihood that a transaction will be unsuccessful. Buyers and sellers are used to calling the shots in their day-to-day operations, and it is tough to trust the process. Patience is the key, but diligence and focus are also paramount for transaction success.