As Airbnb siphons $1 billion from the investment community with a fresh $25 billion post-money valuation, companies in the high-profile vacation rental industry are planning to cash in their chips.
But as Kenny Rogers says, “You never count your money when you’re sitting at the table…”
HomeAway has built its empire through acquisition, but in the last year the company has slowed in purchases of new companies. In HomeAway’s Q2 2015 Earnings Call, CEO and Chairman Brian Sharples was asked about this shift.
His response was, “I think it’s safe to say that the reported valuations of Airbnb have gone to the heads of every small entrepreneur in the world that has something that looks like a vacation rental site.”
Sharples added, “So when we go and look at new growth businesses that seem to be exciting in our category, it used to be very easy for us, because we’re essentially the only buyer, and we could buy on the basis of a multiple of cash flow. Most of the young companies in new geographies, A) don’t have positive cash flow, and B) have very high valuation expectations.”
As a leading transaction advisor for vacation rental management companies, Ben Edwards, President of Weatherby Consulting, echoes the HomeAway leader’s sentiment. “Relative to vacation rental companies, an incorrect valuation, not only sets the wrong expectations, it may identify probable issues associated with the sale of a vacation rentals business.”
Ben Edwards explains:
As vacation rental managers position their company for sale, many valuations are not credible, depicting unrealistic earnings or elevated multiples of EBITDA.
As with the sale of any business, company owners want to maximize value. In the vacation rental industry, that is done through a clear and calculated valuation that depicts a market-rate value for the business…a value that is competitive compared to other vacation rental transactions -and not faux earnings or a lofty, unsubstantiated multiple of earnings.
Companies that shoot high, often have other areas of the business that may not reasonably represented, highlighting probable issues associated with a further transaction. The goal for the seller in selling their company should be to set clear expectations and avoid concerns associated with an incorrect valuation. Getting a market-rate assessment of the business from an expert is advisable. Most professionals charge either a nominal fee or will perform a complimentary assessment of the business.