Learnings from RateGain's acquisition of Adara

Travel solutions provider RateGain recently announced the acquisition of travel intelligence and intent company Adara for $16.1 million.

Adara generated $100 million in revenue in 2020, followed by $21.2 million in 2021 and $27.4 million in 2022. The acquisition structure was an asset purchase agreement: $14.6 million cash at closing and a deferred second payment of $1.5 million due December 31, 2023.

Great deal for RateGain. Not so great for Adara founders, employees and investors, which included big-name venture capital travel tech investors who invested around $67 million total over the company lifecycle.

In the travel industry we talk a lot about how much money a company raises. It’s plastered across the travel media world and social media.

What we don’t talk about so much is what travel companies sell at. Most travel sales are “unknown,” so this announcement helped shed light on a deal.

I’ve been a travel founder, CEO of an online travel agency, an investor in 20 travel startups and a seller of multiple travel businesses.

Why not bank $1 million, $5 million, $25 million, $50 million when you have the chance? My guess is that Adara founders had opportunities to sell during the earlier stages of the lifecycle.

Why sell when you are on top?

• You have the opportunity to make hopefully hundreds of thousands to millions. This could set you up for life or fund your next venture.
• You know you’re going to build more than one company and you only have so many years.
• You’ve successfully built something that has value that another company or financial firm will buy.
• You have an opportunity to accomplish the goal of why you started the business in the first place.
• The travel industry is really difficult and you don’t know what’s around the corner. There is always something: pandemic, new competitors, technology change, new government regulations, supply-side issues, employee issues. The list is long.
• “You have a better chance of getting hit by lighting than selling a business for $5 million-plus.” That’s a quote from a travel tech founder who recently raised $185 million.
• When you hit year seven of operating the company, you’ll get burned out. It’s called the seven-year itch. It’s real. Just ask any travel CEO.

It’s a miracle you’ve made it this far

When you launch a travel startup, there is an upwards of 80% chance you will fail. If you raise venture capital, you’re less than 2% of all the businesses that year.

Of the companies that are VC-funded, around 35% of these completely fail. Another 35% flounder, not reaching VC expectations. Just 30% ring the register through IPOs and getting acquired.

Yes, that’s correct. Of all the millions and billions that get invested, a massive amount gets wiped out. Just because you’ve raised $67 million doesn’t mean it will work out.

This is a hard concept for entrepreneurs to grasp, as we are wired to keep building, keep raising capital – grow, grow, grow. We also read about the big successful exits, which we know are difficult to attain. Still, this keeps us motivated and pushing forward.

How do you know you’re on top?

The value of your company is the greatest at a specific time in each of your company’s lifecycles.

Hopefully your value increases as you go through the lifecycle phases: pre-launch, launch, MVP (minimum viable product), iteration, commercialization, growth, scale, mature. You can sell a company at any phase. Most travel companies sell during the last four.

Here are the key on-top indicators through lifecycle phases:

• Key financial indicators let you know you’re on top. Revenue or EBITDA is at the top; it’s reached the highest point during the phase.
• VCs keep approaching you, wanting to give you more capital. You find it easy to raise. You’re on top right now.
• Competitors start copying your innovations, products and services. You’re innovating and probably the category-leader - or a close second or third.
• You receive an unsolicited offer from a company. You’re obviously doing something special.
• You start to personally feel that you’ve done all you can do to build the company. You’re physically and emotionally on top.

Looking back, Adara may have been close to being on top at $100 million in revenue, then the pandemic hit with a whole bunch of other issues fighting against them.

Knowing when you are on top can be difficult to see. It’s not a perfect science. These indicators are just a few signals to help founders decide to sell.

But sell when you are on top, and you won’t ever regret it.