January 2007 When acquisitions make sense for associations
In 2004, two new execs with no association experience joined the Travel Industry Association (TIA). Concerned that the huge success of the association’s large trade show — the International Pow Wow — put the organization in a highly vulnerable financial position, the two began making very corporate-type moves. Two recent strategic for-profit show acquisitions have broadened TIA’s member base, boosted its relevance and diversified its economics.
By Maxine Golding
The Travel Industry Association’s President and CEO, Roger Dow, and Vice President of Strategic Partnerships, Vickie Singer.
On the surface, the Travel Industry Association’s (TIA) well-oiled business was rolling along nicely in January 2005. It held a strong position as market leader promoting travel and tourism within and to the United States and boasted a blockbuster meeting — International Pow Wow — and a healthy $6 million reserve fund.
But e-commerce was fast transforming travel marketing and consumer decision-making around the world, and it was not yet a major focus within TIA (www.tia.org). To illustrate the burgeoning influence of the online channel on travel, PhoCusWright’s U.S. Online Travel Overview (Sixth Edition, December 2006) projects that 54 percent of all U.S. travel in 2007 (estimated at $260 billion) will be booked online. That’s a significant jump from 47 percent of an estimated $247 billion in 2006 and 41 percent of $225 billion (actual) in 2005.
To travel consumers living in London, Dubai is closer than Orlando. As a result, such international destinations have been priming the travel pump and intensifying competition with TIA’s members — U.S. destinations. It’s vivid evidence of the flattening world described by New York Times columnist Thomas L. Friedman: global in scope and digital in process.
How could TIA maintain value to members operating globally and interactively? How could it expand its resources and reach to combat intensifying competition from international destinations? Without travel e-commerce in its fold, TIA could not hope to gain market power and remain a contender on the playing field of the future.
The timing could not be better for TIA. Two new leaders brought into the association their deep private-sector and e-commerce experience with hospitality and travel companies including Marriott and Avis. With President and Chief Executive Officer Roger Dow and Chief Operating Officer Michael Pusateri rallying the TIA team with an aggressive posture toward growth, 2005 became the year for action.
The first step TIA took was to acknowledge the peril of Pow Wow’s success. The association’s largest revenue source by far (40 percent of total) left TIA in a highly vulnerable financial position. To diversify its revenue streams, TIA’s member base and event portfolio needed to widen, Dow told the TIA Board’s executive committee in early 2005. The second step was to embrace e-commerce as part and parcel of the travel industry now and for the foreseeable future. Clearly, “TIA needed to be in the Internet channel and at the same time diversify the economics of the association,” says William C. Peeper, former President of the Orlando/Orange County Convention & Visitors Bureau Inc. (www.orlandocvb.com) and TIA Treasurer (who retired in December 2006).
More importantly, TIA had to maintain its relevance to travel marketers. “If we’re not convening on the business issues around the Internet, we miss that train,” Pusateri admits.
A neat bundle Moving swiftly and under the radar, TIA tied the two together in a neat package when it bought TravelCom first in 2005 and then Res Expo in 2006.
If TravelCom represented the strategy for the online marketplace, Res Expo covered the tactical side. To TIA, it made sense to deliver both approaches to travel e-commerce — the what-for and how-to — in a single environment. And the overlap in attendance was projected at only 10 percent, making the two events ideal candidates for a successful co-location.
The shows will be bundled for the first time April 4-6, 2007, at the Mandalay Bay Resort and Casino in Las Vegas. More than 100 exhibits and 1,100 attendees are expected.
The TravelCom purchase surprised TIA members and many people close to the show, which was produced by JD Events (www.jdevents.com). The deal was especially remarkable, since it’s so rare for a nonprofit association to buy a for-profit show.
TravelCom continued its upward trajectory after its move to TIA. Revenue grew 29 percent in 2006, from $939,000 to $1,219,000, outstripping budget projections. TIA predicts TravelCom will net big bucks in five years, after paying back the purchase price of a multiple of twice revenue plus additional considerations (not available for publication).
And that’s when the jolt to the bottom line really kicks in. The show will provide a fresh base of funding for new priorities that are emerging from the increasingly global travel marketplace. More international destinations — with new attractions, marketing sophistication and financial support — are challenging the United States for the attention of travel consumers. Ratcheting up TIA’s legislative agenda, building global marketing strategies and demonstrating tourism’s contribution to the U.S. balance of trade all take money.
Yet TIA isn’t relying on its meetings portfolio alone for additional dollars. It’s aiming for an ambitious 26 percent increase in 2007 revenues across the board for everything from sponsorships to research services. New initiatives include the Discover America partnership, with industry luminaries like Jonathon Tisch, Chairman and CEO of Loews Hotels, helping to formulate ways to use travel and tourism as a public diplomacy tool (for more on the partnership’s recent travel survey, read “Survey finds international travelers put off by U.S. immigration practices,” EXPOweb News archives, November 2006). The organization is also deepening its research capabilities to address emerging markets (such as China and India), segments (a study on gay and lesbian travel), and topics appropriate to sponsors (ideal vacation survey for American Express).
Today, 10,000 marketers in travel pass through TIA’s expanded meetings portfolio, clear evidence of the organization’s increasing reach and power. Pow Wow addresses tourism into the United States via traditional channels. TravelCom focuses on domestic business within the United States using the online channel. TIA’s Educational Seminar for Tourism Organizations (ESTO) brings together state tourism departments, and its Marketing Outlook Forum projects demographic and technological changes to come.
“No matter which way this train goes 10 years forward, we’re geared for it,” Pusateri says. And with TravelCom on board, Pow Wow’s contribution to TIA revenues now represents a more acceptable 32 percent.
Moving with the times TIA meetings don’t exist just for educational and networking purposes; they also develop, communicate and, most importantly, fund organizational priorities. With the quantum leaps the Internet was making in marketing and distribution within the travel and tourism sector TIA represents, the organization had to find a way, and fast, to move with the times.
By buying TravelCom and Res Expo, TIA went where few associations go, and the purchases both eliminated competitors and handed TIA brand equity.
“It takes guts, vision and commitment for a nonprofit to buy an incumbent, then six months later buy a second incumbent and put them together,” says Henry H. Harteveldt, Vice President & Principal Analyst, Travel Research, Forrester Research (www.forrester.com), and an early co-chair of TravelCom. “I don’t know what other organization could have invested in TravelCom and given it the attention it deserves. TIA stepped up, saying, ‘We think this is the best possible use of funds.’ It’s a very powerful statement.”
It’s also reflective of the organization’s mindset, says Peeper. “You don’t need to think not for profit because you are,” he says. “In TIA’s thought process, it has to have the resources to do what it should do to ensure the health of the association.”
It’s not TIA’s way to jump in first and ask questions later. “Pioneers get arrows in their back,” Pusateri says. Instead, the organization’s leaders watched the e-commerce market for a while and asked lots of questions. Then, when the moment came, TIA could “make a small investment that would be a smart investment later on,” he says, especially with online marketing and distribution still on the early side of growth.
Still, the economic outcome won’t be clear for years, as the market ultimately decides which meetings and approaches work best. But in Pusateri’s view, “if the market shifts TravelCom’s way, TIA has an asset on the books it can sell, if necessary.”
Making a deal TIA’s size and influence made a compelling case to Joel Davis, President and CEO, JD Events, who launched TravelCom out of the ashes of an earlier dot-com show. The company’s business model is to create and incubate shows and then sell them. Yet Davis was not expecting TIA’s approach shortly before the fourth TravelCom in April 2005.
“The new management at TIA saw that growth was going to be heavily driven by the online world and decided they wanted to have a leading event in that niche,” Davis says. “They saw ours as a perfect fit.”
Dow and Pusateri told Davis they considered the idea of launching an event of their own, but that could be very difficult, challenging, slow, costly and not guaranteed to succeed. After Pusateri met Davis formally at the show, serious discussions followed. With no brokers or bankers as intermediaries, the deal came together swiftly, but not without bumps.
“Our shows are always for sale,” Davis says, “although the larger they can grow under our own roof, the better. When TIA came to us, we were interested, but it had to be for the right arrangement.”
Unfortunately, the two used different yardsticks to measure their businesses. Show producers like JD Events typically value their shows in multiples of earnings before interest, taxes, depreciation and amoritization (EBITDA). Associations like TIA, rarely purchasers of shows, set different metrics for valuing their return. Initially, the numbers were not close.
“I told them that we could not justify the deal unless we get a reasonable multiple of earnings for a show that’s growing,” says Davis. “There really weren’t any obstacles other than that. By our way of defining a happy home for our children, this was a very motivated buyer. The show fit strategically in TIA’s objectives.”
Yet after running TravelCom for three years, Davis had become convinced that it was more of a high-quality conference than a trade show. “We like to have the opportunity to grow the exhibit side as much as possible, where you can see tremendous long-term value,” he says. “But because we did not see the exhibit side necessarily taking off, we probably were not going to continue to invest heavily in it. So the timing of the sale was quite good.”
The two sides finally agreed on a multiple of two times revenue (plus other considerations), delivered in an initial payment at closing, followed by two additional payments over the next two years.
Under new management That TravelCom grew so quickly from its inception was due in large part to a hands-on advisory board that met to debate issues and topics, as well as select and secure speakers. “In the first few years, we had to put on something really compelling since it was too easy for attendees not to come,” says Harteveldt. “Speakers were chosen for their relevance; there was no pay-for-play.” And it showed. The conference provided actionable information on issues directly relevant to the people making decisions on online travel marketing and strategies, says Terry Jicinsky, Senior Vice President of Marketing, Las Vegas Convention and Visitors Authority (www.lvcva.com).
Yet TravelCom’s DNA was naturally expected to evolve under TIA’s watch. In anticipation but without sharing knowledge of the impending purchase, TIA recruited Joan Lowell, Vice President for Electronic Distribution at Hyatt Hotels Corp. (www.hyatt.com), to chair a new e-commerce committee to advise TIA on related issues. After the buy, the committee was ideally positioned to develop the conference program, which became a major focus of the committee’s first meeting in mid-2005.
With TravelCom on board, TIA immediately broadened its base of travel segments participating in e-commerce platforms, inviting cruise, rail and destination marketers into the mix. That required the committee to develop more relevant programming and track education to levels of experience.
TIA continued Hospitality Sales and Marketing Association International’s sponsorship of TravelCom, which JD Events had forged, and tapped its own web of partners to market TravelCom. In the transition, consultants who had worked on the show for JD Events, doing things such as selling exhibits and sponsorships, moved over to TIA. Because JD Events, with its incubator business model, keeps detailed sales, marketing and operational reports, “any new owner can pick up the ball and run with it,” says Davis.
Making the break A transition year, though, is never without challenges.The committee, a combination of the show’s original advisory board, new sponsors and volunteers, ballooned to 45 people — too large a group for effective planning. At the same time, the wider attendee mix meant a changed focus, which did not necessarily appeal to all exhibiting vendors. Plus, trade show hours were sometimes in conflict with other show activities. All in all, the 2006 show was “far from great,” Harteveldt says.
Breakout sessions, however, were engaging, with lively exchanges. And TIA was successful in attracting destination marketing organizations and other new segments to TravelCom, while maintaining strong attendance from the hotel community.
Pusateri admits that the 2006 meeting was “our experimental year.” But TIA heeded feedback from a post-event advisory board meeting on what worked and what didn’t work. And after Res Expo was purchased, the board was downsized to two dozen members. “They got rid of vendors and players without meaningful brands in e-commerce, marketing or technology,” says Harteveldt. “And they got Vickie Singer, who built Res Expo into something impressive and relevant,” to run TravelCom. She owned Res Expo for five years, and during the 18 months before merging with TIA had a partner, Vela McClam Mitchell, President and CEO of Market Designs. Singer now manages TravelCom and serves as Vice President of Strategic Partnerships at TIA.
Singer is eager to incorporate more technology tools at TravelCom: audience response systems to drive question-and-answer sessions, Webinars to reach additional market segments, and social networking capabilities to connect people in advance and at the event.
The e-commerce committee’s diverse members now represent the target audience for attendees. They know what will motivate audiences to attend, which is their first objective. The second objective is outreach: communicating the value of TravelCom to their individual companies’ stakeholders and constituents, to attract more potential attendees, says Jicinsky, who followed Lowell as TIA E-commerce Committee Chair.
But the show’s move to Las Vegas in 2007 may pose a new challenge. Until now, TravelCom was set in New York City, where it was easy to issue trade show passes to drop-ins from marketing and media companies in the region. Harteveldt worries that a Las Vegas-based TravelCom won’t attract such walk-in business, unless the western third of the country “acts like New York,” he says. “So the show will have to be really compelling to justify a place on managers’ calendars.”
Into the future Until TIA folded online intermediaries and vendors into the organization, it could not claim to represent all segments in travel and tourism. Eighteen months ago, “the online world was one of our holes,” says Jicinsky. Now, the broadened membership base gives TIA the opportunity to truly become the voice of the industry.
“Not discounting what TIA did in the past,” he adds, “I credit Roger Dow for bringing new blood into the organization and really challenging staff, board of directors and volunteers to think outside of what they have historically accomplished.”
The ripple effect from more meetings produced and greater expertise and economy of scale of staff will benefit TIA. And as the organization progresses with its strategy, it’s likely to add to the meetings portfolio to meet the needs of its burgeoning segments.
“If you look at the portfolio of TIA meetings, there really isn’t a forum that brings together every segment of the industry to talk about issues,” notes Peeper. “Some have suggested that the Marketing Outlook Forum should broaden to more of a travel industry convention. Would it be more effective to meld Outlook with other activities? Can the committees within TIA be more synergized in a convention format?”
For now, TIA is working to stabilize the acquisitions. But look for TIA to broaden further. “People think about ‘leisure travel’ with TIA, but travel is corporate, too,” says Pusateri. “That may be somewhere in the distance for us.”
Don't hang on to tradition Nothing is sacred or untouchable for TIA in strategizing for growth.
“It’s just as hard to reinvent as to start something new,” says Michael Pusateri, Chief Operating Officer of the Travel Industry Association.
TIA’s Unity Dinner is a clear example of how the association follows the “S curve” process — storming, norming, performing and adjourning – in reinventing an existing program or starting something new. In earlier times and as originally designed, the dinner would draw three to five congressional leaders and 1,500 attendees, declining in recent years to 600.
Listening to suggestions from lobbyists, TIA took a gamble to replace the single dinner with the Travel Leadership Summit, where individual states bring their own delegations to host their own dinners simultaneously on a single night. On Sept. 12, 2006, 30 states took the plunge, and more than 130 Congressional leaders were drawn to take part. Texas, for one, flew in 250 people, who hosted 1,000 people for a Texas barbeque. A rally before the dinners promoted the unity message, and the next day, attendees visited Capitol Hill.
“For the first time, 130 leaders heard the same thing about the travel and tourism industry,” Pusateri notes about the pilot program. He fully expects bigger contingents of TIA members to participate this coming year.
Making the decision “was pretty scary,” Pusateri says. “But you need courage to adjourn what you’ve been doing for something better.”
Maxine Golding is an award-winning writer and editor with more than 20 years of experience in the meetings, expositions and hospitality industry.
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