I must admit, sometimes I indulge myself in stock trading. One thing I’ve learned is I’m never going to sell a stock at its highest point; however, it’s always good practice to sell when it’s trending up, as opposed to watching it peak, then reverse.
Right now, the short-term vacation rental market is 🔥. There are more buyers and more money than ever before. A few years ago, sometimes it took several months to receive an offer on your company. Today, we are seeing multiple offers in just a few days. While the buyer demand is certainly there, vacation rental operators will need to contemplate a few things before they decide to sell.
📈 Up and to the Right
For many vacation rental company owners, 2021 was their best financial year since they’ve been established. From inflated daily rates to pent-up guest demand, it’s definitely been a lucrative last twelve months.
Coming out of the strongest financial year to date, many sellers have the opportunity to leverage a multiple of their 2021 EBITDA to receive a high offer. Sounds great, right? Although we’ve seen this happen several times so far in 2022, not every seller is able to cash out at the highest point. There are many established industry buyers and several new ones entering the market; however, they are well versed in mergers & acquisitions and are expecting professional companies. For a seller to get the highest purchase price and terms, they also need to show a strong overall business that’s trending “up and to the right”. Read more about that in Part 1 and Part 2 of our “Prepare Your Company To Sell” series.
💰 Types of Buyers
The amount of interest in the short-term vacation rental industry is at an all-time high. We’re seeing several types of buyers and each one looks at different company metrics, including EBITDA, Net Revenue, and Price per Unit. Read more about buyer metrics here.
> Venture capital-backed: Focused on net revenue, price per unit, and EBITDA
> Private equity/family offices: Focused on EBITDA over $1M and over 100 units
> Strategic operators: Companies in complementary markets or market competitors looking to expand for cash flow & diversity. Focused on EBITDA
Most vacation rental markets have seasonality, and peak season is when operating accounts are overflowing. There are pros and cons to consider when selling pre-season and post-season.
Pro: Typically buyers will put a higher price and less contingencies on the deal structure, for two reasons:
- Buyers get to retain the profits from peak season and come into season with a padded trust account
- Homeowners are less likely to leave the program when they have a full calendar of bookings
Con: The seller doesn’t get to keep the profits from the season. Also, it can be difficult to manage your company selling while preparing the business for the peak season.
Post-Season (the pros and cons are basically reversed)
Pro: The seller gets to retain the profits from peak season.
Con: Typically buyers will place more contingencies when closing after peak season because that is the time when homeowners consider leaving the program. Less bookings = less sticky homeowner contracts.
It’s not easy to decide when and how to sell your business. We can’t predict the future, but we do know the market is hot right now. Having completed transactions from $50K to $220M, C2G Advisors is the “Go-To” company for any size deal. Whether you’re looking to sell your company, strategically merge with another, acquire a company, or need a business valuation, we have the experience and expertise to ensure success.