- June 3, 2015
- Posted by: Greg Herr
- Category: Blog, Resources
With increased attention on the vacation rental sector in the media and in the market, investors are sprinting into the industry and looking to acquire vacation rental market share at a premium.
For veteran vacation rental company owners, this seller-friendly environment provides an especially enticing opportunity to explore a potential sale of the business.
Here are six reasons 2015 might be the best year to find a buyer for your vacation rental management company.
Investor interest in the vacation rental space has been on the rise since 2010, but 2015 is showing the largest gains to date.
“Vacation rental managers are in a bull market,” said Ben Edwards, President at Weatherby Consulting and founding member at the VRM Consultants. “Buyer interest in vacation rental management companies is the highest it has ever been.”
Edwards has closed 20 transactions in 18 months from six to eight figures –in competitive bidding environments -with additional interest from multiple buyers in both traditional and non-traditional vacation rental markets.
“The key is to sell to a class A qualified buyer without giving away the farm or making a bad deal,” said Edwards. “Not all buyers are alike. There are good deals and bad deals.”
2. The competitive environment is heating up.
New interest in the vacation rental marketplace has resulted in the emergence of new business models moving across the country, i.e. Vacasa, TurnKey, InvitedHome, et al. With the injection of outside funding, lower commissions, and offers of revenue guarantees, rate-pressure in affected markets is surging.
In addition, homeowners are becoming increasingly savvy at self-management. Consequently, tools to help in self-management are sprouting in major vacation rental markets.
“This is the first time in a decade that well-funded corporations have started to re-enter the local VRM Market,” said Doug Macnaught, founding member of the VRM Consultants and owner of Macnaught Consulting LLC. “If a manager doesn’t have the appetite to either confront these new disruptors, or adapt their business model to the changing times, it may be the perfect time to attempt a sale and get out while the ‘going is good’, so to speak.”
3. The cost of using 3rd party channels is escalating.
The acquisition cost per customer is quickly rising. Behind the scenes, there is a general consensus among the third party channels that vacation rental managers can -and should -absorb a 10 to 15 percent cost of distribution. Furthermore, many channel providers believe the cost will push closer to 20 -25 percent in the next two years.
In HomeAway’s last earnings call, CEO Brian Sharples said, ““Probably the one disadvantage we have versus competitors who are pure bookings base is take rate because there is a segment of our listings -and it happens to be the biggest segment of our other listings -that has a lower take rate than 10% or 15% that other people drive through that. So it is still very much the strategic objective of this team to get that take rate up.”
In addition to the percentages and subscription fees charged, the cost of managing these channels and paying technology providers to integrate with the channels is also increasing with each technology provider wanting a piece of the revenue pie.
4. Marketing costs are mounting.
“Marketing managers for vacation rental companies today are being charged with being web developers, SEO/SEM experts, copywriters, marketing technology and automation specialists, graphic designers, media buyers, social media professionals and email strategists,” said Amy Hinote, founder of VRM Intel and founding member of the VRM Consultants. “The demands on in-house marketing talent are extraordinary, and the cost of outsourcing is rising. Maintaining a strong online presence, nurturing leads and retaining past guests are getting much more difficult and much more expensive.”
In addition to the rising costs of existing marketing tools and services, new marketing technology has been added -including customer relationship management, automated marketing, auto responders, and revenue management tools.
>>Related: The Plight of the In-House Marketing Manager
5. Most VRMs are facing an imminent need to upgrade software and security systems.
The majority of property managers are operating with outdated property management software (or are under-utilizing the systems they have purchased) and security systems.
“For a significant number of large property managers software is like a comfortable pair of shoes, they know that there are many new shiny styles available, but they are worried about the pain of switching to a new pair,” said Macnaught. “It is difficult to truly quantify the pain and anguish involved in a software change for a large company with many departments and diverse practices.”
Macnaught added: “The amount of work involved in simply determining what your needs are –added to the treacherous process of selection and implementation —may well be too much for some company owners. It is one of the most important elements of the company, and often companies do not invest in the correct assistance throughout the whole process. You wouldn’t use your accountant to paint one of your houses, yet they often put them in charge of the selection and installation of a hugely complex piece of technology.”
In addition, security breaches affecting businesses with an online presence or actively involved in ecommerce have become commonplace and well publicized.
“Since most successful Property Management companies do conduct business online, this potential liability has to considered,” said Tom K, Managing Partner of Tom K Consulting Group and founding member of the VRM Consultants. “Without proper systems, policies and safeguards in place, a PM company could be hacked and financially affected beyond the point of recovery. Fortunately, there are professionals available who can help these companies deploy solutions to mitigate the threats, so security IS an issue, but one that should garner serious attention rather than create panic.”
6. Operational costs and an expanding regulatory environment are making growth difficult.
A vacation rental manager would be hard-pressed to find any operational costs that are going down,” said Edwards. “The cost of living has gone up, employees want to make more, software costs are rising, and fuel is up. Vacation rental managers are being charged to find more efficient ways to operate the business, which includes implementing operating models may feel foreign.”
Many markets are also facing increasing levels of regulations and restrictions which add to the burden faced by established property managers. While new entrants are flying under the radar, established companies are bearing the brunt of additional licensing, taxation requirements, reporting, trash and parking compliance and guest communications.
“Most Property Managers have spent their entire time being compliant with local taxes and regulations and have never truly been rewarded or even appreciated for doing it,” said Macnaught. “As the new disruptors make it harder to do business, many home owners will see their property manager as failing to adapt and protect them, rather than having kept them legal. This falls under the category of ‘No Good Deed Goes Unpunished’ and could well tip the scales in favor of an exit.”
With rising costs, the need to adapt business models and the changing skill set required to remain competitive in the evolving vacation rental marketplace –added to an influx of buyers and investors looking to acquire market share at a premium – the vacation rental landscape is likely to reshape in the coming months.
Macnaught added, “If vacation rental company owners sell to one of the companies that have the new technology systems with Revenue Management Tools, responsive websites, and all the other shiny new things, they could be seen as bringing new life to the company for the benefit of the staff and homeowners as opposed to ‘selling up’ and leaving them ‘high and dry.’”
As the year progresses and the seasons unfold, business owners will find 2015 to be a tempting year to look at opportunities to execute their exit strategies.