Good morning,

Here’s what’s going on in the vacation rental world this week:

Vrbo hosts can now pay to outrank each other at the top of search, HomeToGo credited a 72% revenue jump to its Interhome acquisition and a heavy dose of in-house AI, and we break down what actually separates a 20-property operator from a $3 million vacation rental property management company.

Lets dive in. 

NEWS

Headline Roundup

• Vrbo’s Sponsored Listings are live, letting hosts pay to rank at the top of search (Expedia) 

• HomeToGo's revenue rose 72% following Interhome acquisition (PhocusWire) 

• Casago completes the sale of all former Vacasa markets (The Host Report) 

• Wall Street is starting to believe Airbnb's growth story (Skift) 

• Hospitable launches a Business Dashboard with recommendations for hosts (Hospitality Technology) 

• Summer season is holding steady at western mountain destinations; but guests are shifting toward later months and lower prices (Inntopia)

Presented by: GuestLink

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INTERESTING INSIGHTS

What PE Buyers Actually Want at 20, 50, and 150+ Properties

There are roughly 30,000 vacation rental management companies in the U.S.

Only about 300 manage more than 300 properties.

And according to C2G Advisors, roughly half of those larger companies have already sold to PE firms.

That leaves about 150 operators at that scale, and only 3-5 typically come up for sale each year.

In other words: there’s a lot more Demand (PE firms looking to buy vacation rental mgmt companies) than Supply (companies available to buy).

That caught my attention.

I recently listened to a conversation between AirDNA and C2G Advisors, an M&A advisory firm that specializes in vacation rental management companies. 

What stood out was how differently buyers evaluate a company managing 20-50 properties, a company managing 50-150 properties, and a company managing 150+ properties. So I pulled out some of the most useful takeaways.

Unless otherwise noted, the benchmarks below come from C2G's experience advising vacation rental M&A transactions.

Under 50 properties: Buyers are buying the contracts

At the smaller end of the market, buyers may care less about your "company" than you think.

The buyer here is often a larger regional property manager that just wants to buy your management contracts.

Imagine a 100-property manager acquiring a local competitor with 20 properties. The smaller operator probably knows every homeowner personally and may still handle everything from sales to operations.

That creates an obvious risk: What happens if those homeowners leave after the founder sells?

Because of that, smaller deals are often structured around retention.

C2G gave an example where a buyer might value each management contract at $10,000, but only pay $2,500 or $5,000 upfront. The rest gets paid later if the homeowner stays.

And 2 simple things can make a major difference in the sale price at this level:

#1: Check the assignability language in your homeowner agreements.

If contracts can transfer without prior homeowner approval, the buyer has a clean path to taking them over. If every homeowner has to approve the sale first, the buyer may not pay for those contracts until the owners agree to stay with the new compnay. According to C2G, that clause can potentially affect hundreds of thousands of dollars in the sale price.

#2: Make sure your trust account is fully funded.

C2G gave an example of a company agreeing to sell for $500,000, but then due diligence to uncovered a $200,000 trust-account shortfall tied to future reservations. Because those future stays are still liabilities, that shortfall can effectively turn a $500,000 sale into $300,000.

At 50-150 properties, buyers start looking at the whole business

Somewhere around 50 properties, the conversation changes.

Buyers still care about homeowner retention, but now they're asking: What does this company earn, and how durable are those earnings?

C2G estimates the average vacation rental management company generates roughly $6,000 in profit per property (that number obviously varies by market and inventory).

But using that as a benchmark, a company managing 100 properties would generate around $600,000 in EBITDA. C2G suggested a company like that might trade around a 5x multiple in today's market, so it would sell for roughly $3 million.

But the quality of the business determines whether that multiple moves higher or lower. A few important factors are:

Clean financials

Buyers want to clearly see commission revenue, ancillary revenue from things like cleaning and fees, direct costs, operating expenses, and true EBITDA. C2G said they still see companies with one giant revenue line labeled "Total Income."

That makes it hard for a buyer to understand where the margins actually come from, and can hurt your valuation.

Forward bookings 

Vacation rental buyers have an unusual advantage… They can see bookings on the calendar that haven't happened yet.

A company might have $600,000 of trailing 12-month EBITDA. But what if the upcoming peak season is already pacing 28% ahead of last year? That's valuable. So the buyer isn't only underwriting what the company did in the past. They can see evidence that earnings may improve immediately after they take over, which can result in a higher sales price… But the opposite is also true. If forward bookings are pacing down, that's risk, and buyers are going to account for it.

Net property growth

C2G estimates average annual property churn at roughly 13%. So if you start the year managing 100 properties, add 13 new properties over the course of the year, but you also lose 13 properties, you didn't really grow.

According to C2G, buyers get much more interested when companies are showing meaningful net property growth after churn.

At 150+ properties, the buyer pool changes

A local strategic buyer might happily acquire a 20-property competitor.

Search funds and independent sponsors often start becoming interested around $1-2 million of EBITDA.

But at the upper end, C2G says PE firms looking for their first major vacation rental platform often want something closer to $3-5 million of EBITDA.

At that point, PE firms are buying your company as a platform to acquire more companies (your business becomes the anchor company for a “roll-up”).

And because relatively few vacation rental managers ever reach that scale, C2G expects PE buyers to increasingly move downstream looking for smaller acquisitions.

The bigger takeaway

Most property managers reading this probably aren't planning to sell tomorrow.

But it's still useful to think about your company from the perspective of someone who might buy it someday.

• Can your contracts transfer cleanly?

• Are your trust accounts and financials clean?

• Do you know your annual churn and true net growth?

• What do your forward bookings look like?

• And most importantly: Could the company keep operating if you disappeared tomorrow?

At 20 properties, a buyer may mostly be betting that your homeowners stay.

At 50-150, they're underwriting your earnings, growth, team, and systems.

At 150+, they’re buying a platform.

And you don't have to be planning to sell your business to care about this, because the things that make a vacation rental management company easier to sell are often the same things that make it a better business to own.

MARKET INSIGHTS

Mortgage Rate Snapshot

Mortgage rates swung with oil prices all week, dipping Wednesday, then climbing for three days to a one-week high, then falling on Tuesday as reports of progress toward peace pushed fuel prices sharply lower.

Regulations Update

• Clark County, Nevada unanimously passed an ordinance barring Airbnb and Vrbo from collecting payment for stays at unlicensed short-term rentals, shifting enforcement onto the platforms after a court blocked the county from fining owners

• The Arizona Supreme Court declined to hear Sedona's appeal, leaving in place a ruling that mobile homes qualify as short-term rentals under state law and ordering the city to pay the Goldwater Institute's legal fees

• St. Pete Beach, Florida commissioners discussed a short-term rental registration program but took no vote, leaning toward stronger enforcement over a registry

• Greenville County, South Carolina is moving closer to its first short-term rental ordinance, with a registration requirement drawing scrutiny

See this weeks full regulations report here: (The Host Report)