USTravel Chairman Is Fast Building an Empire : Company Leapfrogs to 3rd Largest in Industry With String of Acquisitions
Lou Black was a tough sell.
The owner of Jacksonville, Fla.-based Avondale Travel realized the travel industry was changing dramatically. Huge, nationwide agencies such as Ask Mr. Foster were beginning to dominate the industry, siphoning off the most lucrative accounts.
Once-simple issues such as human resources had become entangled in a thicket of state and federal regulations, and the need for increasingly sophisticated computer systems was creating a steady demand for capital.
Still, when Peter Sontag offered in 1987 to buy Avondale for his burgeoning USTravel Systems empire, Black balked. His clear view of the industry’s future suddenly was clouded by the emotions common to many successful entrepreneurs.
After founding Avondale in 1974 and building airline ticket sales, the industry yardstick, to nearly $40 million, he did not want to let go. Working in real estate and then in travel, he had been thrilled by the entrepreneur’s precarious independence.
But Sontag did not go away. USTravel’s Austrian-born chairman, who was leading a high-stepping acquisition campaign, proved he also could waltz.
“Peter is a salesman,” Black said. “He knows how to overcome objections, he knows what a person’s ‘hot’ button is. He realized very quickly that (my wife) Susan would be very involved in my decision and that it was not something I was going to rush into.”
So, the Sontags and Blacks got to know each other. Sontag made Rockville, Md.-based USTravel’s sleek gray limousine available when the Blacks were visiting Washington. Sontag’s daughter and Black’s nephew toured the FBI building together. The Sontags even made suggestions for the Blacks’ new house, such as having two laundry chutes--one for white clothing and one for dark clothing.
Meanwhile, Black was reassured that he would not sacrifice his autonomy by selling Avondale. At one point in the lengthy negotiations, Black objected to a proposal in his employment contract that called for four weeks’ annual vacation. “I said, ‘I feel like a serf.’ Peter said, ‘Fine, tear it up. You can do what you want.’ ”
Top Deal Maker
In November 1988, Avondale became a part of USTravel. “I ran out of excuses. They just wore me down,” Black said.
Sontag, 45, has become the industry’s most noted deal-maker by building USTravel into the nation’s third-largest travel company. Since opening in late 1986, USTravel has leapfrogged competitors to close in on industry leaders American Express and Ask Mr. Foster.
The Sontag style blends hard currency with intangibles such as advice about laundry chutes. He is direct, disciplined, demanding and decisive. An entrepreneur himself, he can step expertly through the emotional mine field surrounding acquisition targets.
Founder-owners, he says, “are the hardest to deal with. The larger the company, the easier to acquire it. You’re dealing with business issues, not emotional issues. The challenge I have is to separate emotional issues from business issues.”
At USTravel’s headquarters, Sontag, who emigrated to the United States at age 22, has created an acquisition team as streamlined as the $70,000 Porsche 928S4 that he drives. Although he draws advice from a half-dozen other USTravel executives, there is little doubt who is behind the wheel--he once cut a deal to buy a $55-million-a-year agency in a 45-minute phone call.
The result: USTravel owns agencies that posted sales of $751 million last year. Fueled by acquisitions, it has grown from a half-dozen employees--led by Sontag and partner Ralph Manaker--to 1,725 employees.
However, the debt generated by that ambitious growth campaign has kept USTravel in the red. In 1988, the company posted an operating loss of $5.4 million on sales commissions of $43.7 million.
Still Some Questions
Some industry experts wonder whether Sontag can create an efficient and profitable company by integrating the 19 agencies USTravel has acquired.
“It remains to be seen whether Peter has the set of skills to build USTravel as a profitable network,” said John Riener, senior vice president of marketing for the huge Ask Mr. Foster travel chain. “At some point, he’s got to stop building and start making a profit.”
“The question is: Will all the pieces hold together, or will there be some defections? Not enough time has passed to tell us that,” said Harold Seligman, a Connecticut-based consultant who helps companies establish travel policies.
V. C. (Jeff) Webb, USTravel’s vice president for marketing, acknowledged the questions. “Our challenge is creating a unified company. Now the perception is of Pac-Man. We have to convince our clients . . . that there is a real company here and that it has advantages the individual agencies didn’t.”
USTravel is a subsidiary of San Diego-based PS Group Inc., a publicly traded holding company whose bankroll was established in the $387-million sale of Pacific Southwest Airlines to USAir.
PS Group, which owns 81% of USTravel, has committed $64 million in cash and credit support to Sontag’s acquisition campaign. PS Group plans to make another substantial commitment--possibly as large as the first--within a month.
Sontag is continuing his acquisition frenzy--he is negotiating with 40 agencies and another 33 agencies are on the back burner. USTravel’s most recent acquisition, a Chicago-based agency consortium, will form the foundation of a franchise network and give the company international exposure. USTravel should pass the $1-billion mark in sales this summer and hit $1.75 billion in sales by the end of 1990.
That would place USTravel close to the industry leaders. Is Sontag aiming for first place? “Absolutely,” he said.