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    Buy or Sell? What You Should Know About M&A

    Mergers and acquisitions in the vacation rental management industry appear to be on the rise. If you’re considering buying or selling, here are some things to keep in mind.

    Never in her wildest dreams did Jodi Taylor Refosco think she’d be selling her vacation rental management company.

    In 2008, she founded Taylor-Made Deep Creek Vacations alongside her brother Chad Taylor and husband Joe Refosco. They built the company from zero properties, doing all the work themselves— they’d even personally mow the lawns. By 2021, their company managed 460 properties and employed as many as 230 people during prime rental season, leaving them to do more managing than mowing. Taylor-Made became a pillar of business in Maryland, building relationships with communities, travelers, and homeowners. “I love vacation rentals,” Taylor Refosco said. “I love everything about it."

    But while the company had grown, Taylor Refosco had come to a point where she and her family were considering selling the company they had worked so hard to build.

    The Taylor-Made owners weren’t alone in mulling the sale of their vacation rental company. Thibault Masson, a vacation rental property manager and author at Rental Scale-Up, noted an increase of mergers and acquisitions in 2021, alongside an increase in private equity and funding deals.

    There’s no report that shows a true rise in the number of vacation rental company sales—most M&A deals in the vacation rental market aren’t publicly reported, as they’re typically between small and mid-sized companies—but Ben Edwards, president of Weatherby Consulting, has noticed the rise.

    Edwards helps facilitate and consult on M&A deals between vacation rental companies, including Taylor-Made’s eventual deal. He’s noticed that sales have risen since the pandemic, which scared many people into selling their business.

    “When the pandemic happened, everybody got a defibrillator to the chest,” he said. “And folks were really worn out—they were tired. As much technology as we have in the business, it’s also very manual. I have to put on a smile to talk to you because you’re on your vacation and we want to make sure you have a great time. It’s a difficult endeavor. I think the combination of peak pandemic occupancy rates—along with the fact that it’s been a tough year and a half—have pushed some people to sell.”

    The Taylor-Made owners were a group that never would have never considered selling before the pandemic. But after 2020, Taylor Refosco and her family were considering their options. They approached Edwards and told him they were thinking about selling. It had to be the right company, Taylor Refosco stated, one that would serve the local area, guests, and homeowners. And one that would keep Taylor Refosco, her brother, and her husband on as employees. “Because I wasn’t planning on leaving,” Taylor Refosco said.

    Taylor-Made wasn’t new to the M&A game; the company acquired Long & Foster Vacation Rentals & Real Estate at Deep Creek Lake in 2016. They knew that the M&A process could take a long time and be complicated, and that due diligence would need to be undertaken by both sides. But the emotions of being on the side of selling a company felt different than buying one, Taylor Refosco said.

    “When you’re acquiring, you’re not selling something you built, something that feels like it is part of you; you’re building on what you have,” she said. “But when you’re selling, you have to balance what you’re willing to give up for the greater good of the company. The emotional journey I went on was very different, and I’m not an emotional person. But it was hard.”

    Taylor-Made received an offer from VTrips, a Florida-based vacation rental company. The offer would allow the Taylor-Made owners to continue working for the company, keep all the employees with the company, maintain the Taylor-Made branding, and even give the Taylor-Made owners shares in VTrips. Taylor Refosco had known Steve Milo, the CEO of VTrips, for years and trusted he’d do right by her company and employees. But, still, she felt strange about selling their company. Was it really the right decision?

    After some time thinking it over and doing due diligence—a time when Taylor Refosco described herself as on a rollercoaster of emotions—the Taylor-Made owners agreed to sell their company. They’d continue managing Taylor-Made, but the risk, revenue, and business now belonged to VTrips.

    “I cried,” Taylor Refosco said. “It was not an easy decision. It was stressful, but we all made the right decision, which was great. That risk and liability keeps increasing year after year. Even as you grow, it’s concerning. And that’s why we entertained a conversation about selling.”

    What made selling easier, she says, was knowing that her employees and homeowners would be taken care of by someone she trusted.

    “My staff is making more money, they have better benefits, better bonuses, and there’s more opportunity for them to grow in their skills underneath the VTrips umbrella,” Taylor Refosco said. “It’s neat that by doing this, we elevated our staff. They’re in a better position now. And we can go back to focusing on what we love doing, which is property management.”

    Getting involved in an M&A transaction is never easy. Here are tips for vacation rental property management businesses considering selling their business or buying another business.

    Ensure Your Business is Sellable

    Not every vacation rental business can be sold, Edwards said. For example, he recently received a call from a business owner who said that her company had been in business for five years, had 40 properties, and wasn’t making any money.

    Edwards asked her a handful of questions that didn’t seem to improve the outlook of the business. He told her that she could call him whenever she wanted for advice, but he couldn’t yet help her sell. “We really try to focus in on making sure you and your business are operating in a professional capacity,” Edwards said. “My quick-and-easy layman’s example for why: Have you ever been to a car lot? Well, we know all those cars are clean—they look good, they smell good, and when you turn the key, the engine starts right up and sounds good. Everything’s dialed in on that car. You want the business to be the same way.”

    Find a Good Fit

    Vacasa, a vacation rental management company with more than 30,000 rentals, grows aggressively by making acquisitions. In 2021, for example, the company paid more than $600 million to buy TurnKey Vacation Rentals, a major competitor.

    But most of the company’s acquisitions are smaller and regional, according to Zac Monahan, Vacasa’s vice president of corporate development and homeowner success. In his six years with Vacasa, Monahan has helped add close to 200 acquisitions to the company’s portfolio.

    According to Monahan, when Vacasa acquires new companies, its goal is to enter a new market or acquire scale in an extant market. But no matter the market, Vacasa always looks for the right fit.

    “We want to see that it’s had a very stable base over the years, that the company has been able to maintain its inventory or grow,” Monahan said. “And then we’re also looking for operational alignment. The employees are the most critical part of these transitions—that’s what the homeowners care most about. That means having an operational structure that’s similar to the way we operate. There has to be strong alignment between what we’re looking to accomplish and what the seller is looking to accomplish.”

    Buying a company is a relationship business, Monahan said. Companies acquiring a new business must be able to have consistency with homeowners, as they’re essentially buying property management contracts. If the relationships between the current business owners and homeowners is sour or the contracts aren’t clear, it likely won’t be a good deal.

    Deal With Known Entities

    Edwards believes that M&A is good for the vacation rental industry, so long as the people making acquisitions know the industry and want to serve it.

    The vacation rental industry is a trust-based industry with many return guests, homeowners who need to trust the businesses they work with, and local communities that want to work with companies that have a good image.

    Recently, someone reached out to Edwards on behalf of a vacation rental owner. They told Edwards they had a business for sale in Colorado—they wouldn’t divulge the name, even after he signed a nondisclosure agreement—but Edwards said they didn’t seem to know industry lingo, nor were they forthcoming about the business’s revenue. Later, Edwards received a call from a business owner he knew who asked why he didn’t want to make a deal.

    “I said, ‘I didn’t even know it was you,’” Edwards said. “’And, by the way, these guys don’t know industry nomenclature. They can’t talk the talk; they couldn’t get my head around the value of the business.’ She went outside and found somebody who she liked, but if she came back to the industry and stayed within our group, the business would have been sold by now. From my vantage point, I think that it’s an important process to keep within the industry.”

    Do Your Due Diligence

    Whether you’re a buyer or a seller, due diligence is one of the essential parts of the M&A process.

    On the buying side, Monahan said that Vacasa has a full team dedicated to due diligence. This team evaluates the portfolio of the company they’re interested in, prepares to integrate that company into Vacasa’s system, and ensures that contracts between the company and homeowners look good, among other things. Often, these processes take 120 days, but he’s sometimes seen this process take years.

    For smaller or mid-size companies that don’t have the budget for a team dedicated to diligence, it may be a good idea to hire a consultant dedicated to researching the other side of the transaction. When companies with little bandwidth for diligence take on the often-complicated process themselves, Edwards said that they’ll often miss key pieces of information that could decimate the deal.

    “Deal terms are changing dramatically right now,” he said. “What you think may be the case may not necessarily be true. The price is not always the most important thing; the yield terms are really important. If it goes wrong, you could sell your business and be left with a lot of risk or may not end up with all the money you were promised.”

    An adviser can consult on a transaction and ensure that everything is aboveboard for both sides, he said. If you’re selling, the diligence process likely looks and feels very different. Taylor Refosco said that when she and her family were selling Taylor-Made, they wanted to protect their legacy, ensure that employees were taken care of, and ensure that the company continues to be involved with the local community.

    “The community relies on Taylor-Made for support, and we’re very heavily involved in charity and community outreach,” she said. “I was concerned about my employees, too, as there are not many jobs out in these areas.”

    Sellers should use the due diligence process to ensure that they’ll be protected from risk after the sale, that the buyer will keep their word, and that the seller will be able to meet their own goals from the transaction.

    Watch for Red Flags

    One big red flag in any M&A deal is an unreasonable request, Edwards said.

    “Anytime somebody said, ‘This is how we always do it,’ you can expect to get punched in the gut,” he said.

    Sometimes, he’s seen buyers ask for 20 percent down without giving a security interest or a promissory note. This would mean that the seller still maintains a lot of risk after the deal. In these cases, “You’re probably not the right guy for us,” Edwards said.

    Monahan said that one red flag he sees are poorly structured service agreements. This may not end a deal, he says, but it often adds a lot of work to the process of due diligence. “If the contract is less clear, then it just involves more conversations to figure out how the business is operated,” he said. “We want to make sure that we can maintain consistency through the transition.”

    Have a Plan, and Ask for What You Want

    As Taylor Refosco was investigating selling Taylor-Made, she and her family planned to stay on as employees and managers. “What would I be doing if I left?” she said. “I would drive my husband crazy.” This was her goal for the transaction, something she said that every seller needs when going into a potential M&A deal.

    For buyers, Monahan said that it’s important to consider goals from the seller’s point of view. What do they want to accomplish?

    “Are they looking to walk away and retire to the beach or the mountains and just be done with it?” he said. “Or are they looking to sell their portfolio and continue to be a part of the operation? … These businesses tend to be passion projects for their operators—they’re passionate about their community, they’re passionate about their homeowners, and they’re passionate about their staff. Thinking about the outcomes for those individuals is an important part of the process.”

    In the investigation process of any potential sale, even before owners have truly decided that they will sell, Taylor Refosco said that they should plan their perfect outcome. Knowing what she and her family wanted from the sale helped them find way to sell Taylor-Made while still staying employed.

    “Never in my wildest dreams did I think I could sell the company but still run the company,” she said. “I still have ownership. It’s small, but it’s still ownership. I never thought I could do that, either. But if you don’t ask, you’ll never know.”

    Hal Conick is a Chicago-based writer. 

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