When a Melbourne travel entrepreneur’s exit strategy went wrong, he bought back the business he had sold two years earlier.
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Entrepreneur: Rob Cecconi, Managing Director
Company: Sportsnet Holidays
Business type: Specialist sporting tour and travel operator for corporate, leisure and wholesale markets
Founded: 1998
Employees: 7 full-time
Turnover: (2006 - 2007) $4.5M
Head offce: Clifton Hill, Victoria
Contact details: 1300 888 858
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Key learning points:
- Exit strategy - Sell the business based on its potential strategic value to buyers, not the current financials.
- Selling out - Don't wait to be asked. Identify potential buyers and hold your own auction.
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The Sportsnet Story
A trip to the Barcelona Olympics in 1992 was the start of a fascinating business journey for travel consultant Rob Cecconi. He spent the next six years working, travelling and indulging his passion for sporting events. And that helped him spot a business opportunity: specialist sports travel packages. He says: "I knew I wanted to set up a niche business in the travel industry but I was waiting for the right opportunity."
Finding a niche was vital in the highly competitive travel market. Cecconi says: “The USA had 12,000 travel agents for a population of 300 million; in Australia we had 4500 travel agencies for a population of 20 million. I didn’t see that figure as being sustainable.”
In 1998, Cecconi was asked to package a tour for the Daytona 500. He grabbed the opportunity and started Sportsnet Holidays. The business thrived and in October 2004 he received an offer to sell that he couldn’t refuse: money, an executive role and the chance to participate in a float. It seemed like the ideal exit strategy …
The Challenge
Selling a business - and buying it back again.
The Solution
Cecconi began focusing on business exit strategies in 2003 while studying a Masters of Entrepreneurship and Innovation at Swinburne University. One professor - Dr Tom McKaskill - had developed a new exit-strategy principle that inspired Cecconi. He says: “I fell in love with the exit strategy and we started working closely together. We took his principle and applied it to Sportsnet Holidays; in effect, I was his first case study.”
The new exit strategy involved taking a strategic rather than a financial approach to valuing a business. Cecconi says: “If someone just wants a business to run, they will drive your price down. McKaskill’s approach takes the focus away from the balance sheet and instead looks at how the buyer can scale their business up.”
In 2003-04, Sportsnet Holidays turned over $3 million with strong profit. Cecconi says: “Business was going really well and using McKaskill’s principle it was the perfect time to sell.”
In October 2004, Cecconi identified eight Australian travel companies as potential buyers. Information memorandums were sent out and the competitive bidding began in mid-December with a strict two-week deadline of 5pm on Christmas Eve. Cecconi says: “We had three companies competing. The bidding stopped at 5pm and I promised an answer by 7pm.”
The Perth-based Travel Services Group (TSG) was the successful buyer, paying 10% over the reserve. Cecconi says: “The process worked. TSG took over on February 1, 2005.”
TSG was planning to float and, as part of the sale, Cecconi says he was given stock and a seat on the board. He says: “I saw it as a fantastic learning experience, to be on the board of a publicly listed company. I could see Sportsnet Holidays going to the next level.”
But the float never happened. Cecconi says: “Unfortunately they fell short; over the year there were a number of failed attempts to raise money to expand the company.”
In March 2006, Cecconi resigned from his board position to concentrate on Sportsnet Holidays. He says: “I still had a shareholding and wanted to see TSG grow but by this stage Sportsnet Holidays was the only profitable entity in the group.”
In March 2007, TSG went into financial administration. Cecconi says: “The administrators came in, terminated us all, changed the locks and told us to leave. I was mortified; I felt such a sense of responsibility for the staff and our clients.” Cecconi says a representative of the administrators called him at home that evening. “He said: ‘I hear you’re the founder of Sportsnet Holidays … how would you like to buy it back?’ It was a pretty crazy day, just hours earlier we had all been terminated.”
Seven days later Cecconi settled with the administrators, buying Sportsnet Holidays for less than 10% of the price he had sold it for two years earlier. He says: “My conscience was clear; I knew I had done everything to ensure that Sportsnet Holidays remained profitable and professional.”
The Result
Sportsnet Holidays has had two record sales months since the buyback. Cecconi expects the business to turn over $6 million for the 2007-08 financial year.
Cecconi still believes in McKaskill’s exit-strategy principle. He says: “The model works but we got the wrong buyer. I would still apply the principle to selling the business … but next time I would have an exit strategy for myself.”
Looking back, would Cecconi do anything differently? “I would never, ever take shares in a public unlisted company again because there is no ability to make those shares liquid.”
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