Vacasa’s 160th acquisition is a big one – and one that has the vacation rental sector abuzz at what it means for the future of the industry.
Last week, Vacasa, one of the leading vacation rental management companies in North America, announced its acquisition of Austin, Texas-based property management company TurnKey Vacation Rentals.
Terms of the agreement were not disclosed, but the deal - a combination of equity and cash - is expected to close in a month and comes at a time when demand for vacation rentals has boomed amid the COVID-19 pandemic.
Among certain corners of the vacation rental industry, the deal was not surprising: Many believe that consolidation was bound to happen – and will continue – as competition increases and the pressure to scale intensifies as companies crawl back from the pandemic.
However, for an industry so fragmented, what will further consolidation mean for smaller players in the space?
And for Vacasa - under pressure to turn profitable - is acquiring TurnKey a move to better position the company for an eventual IPO?
Below, we hear from vacation rental experts on what the Vacasa/TurnKey deal will mean for the sector and the travel industry at large.
Steve Milo, founder and CEO, VTrips
“This proves again that capital is starting to move into what I would call the supply market. Previously to this, most of the capital was on the demand/OTA side, and we’re seeing more and more capital now being invested in the supply/property manager side. That’s really good news for the industry because there’s far more demand than supply right now.
“Regarding an IPO, I’m not sure that their accounting is in the shape to withstand an IPO any time soon – SPAC is more likely an outcome.
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“Generally, we’re going to see an acceleration of consolidation: I think investors have figured out that the property manager space has exclusivity of the contracts, and that exclusivity is the [key] to profitability in the industry. I would anticipate a lot more capital coming into the property management space and rolling up what is still a hyper-fragmented market. For all the capital invested in Vacasa, they’re still only 5% of the North American market.
“I think a lot of property managers in the space are watching Vacasa to see if they can solve their operational issues. Vacasa has proven it can raise money, but the question is can it operate a business in an operational and profitable manner.”
Michelle Williams, general manager, Atlantic Vacation Homes
“As we’ve been witnessing, the vacation rental industry is in a major consolidation phase. It’s exciting to see the strength in this market as it matures. The challenge ahead for larger companies like Vacasa is that most vacation rental companies inherently have two customers that need to be satisfied: the guests and the homeowners. It’s a tough balancing act for any company, and it will be interesting to see how that dynamic plays out at such a scale - especially as investors and/or shareholders, who also need to be satisfied, increasingly become part of that equation.
“The advantage for small businesses who compete head-to-head with Vacasa will be agility. Those who are able to pivot or adapt as needed to the ever-changing market while continuing to deliver a highly personalized experience for their guests and owners will remain on the playing field.”
Richard Vaughton, co-founder and director, Rentivo.com
"Some head-scratching initially, but with COVID exposing commission-only business models, then there would be money sharks in the water that believe size is everything and M&A is the answer. True with scales of economy, supported by great technology, but this doesn't look the case at all when operational activities are involved and direct booking margins aren't great.
"A full-service solution like Vacasa appears to be a hyper-local cleaning business that is very hard to scale profitably. Adding in new destinations will expand the reach and the customer base, but Vacasa is not a brand like Airbnb and pays homage to Google and other marketing channels. Businesses that command decent commissions and deal with guests personally but have a good percentage of owner-managed properties can see the benefits of scale. Think SykesCottages, which is in a much smaller country but has a much stronger brand relatively, has 20,000-plus properties and is data-driven. Or Marriott Homes and Villas, a big vertical brand that drives traffic but isn't concerned about operational activities in a very distributed environment.
"What does it mean? I would suspect any fully managed 'generic inventory' scaling businesses will need to leverage more fixed costs from owners and maybe tie guests to memberships schemes to stabilize the income statements. There is only so much margin in the owner channel, however, and is a recipe for inventory churn, feeding the self-managed or independent local businesses models, which Vacasa keeps buying: It's Groundhog Day.
"It's also hard to envisage where the new Vacasa/TurnKey combined model can go, but building a bigger cleaning company doesn't make it an Airbnb lookalike. Perhaps Turnkey is a pivot moment. Investors will need to seek new models that can compete at acceptable owner margins and look to specialist cleaning businesses or owners to worry about 'on-the-ground operations' that drain corporate profits. Those that focus on data and communication technology to keep owners engaged, reduce staff overheads and manage third-party operations have the capacity to build a sound brand and increased direct booking opportunities."
Graham Donoghue, CEO, Sykes Holiday Cottages
“This is a good move for Vacasa and no doubt will not come as a surprise to many in the vacation rental sector. Given the vast amounts of private equity investment and the resilience of the sector over the last year, more consolidation like this will be inevitable as the checkbooks come out.
“The key will be value creation and the road to efficiencies - you can’t just keep collecting stuff as eventually you’ll get found out, even if you create a SPAC or full IPO. Analysts tend to give you a few quarters of grace, then its SELL, SELL, SELL.
“With the level of fragmentation in the U.S. the runway is long, but the market in Europe is very different, should this be the next move for Vacasa. A quality acquisition would be needed sharing the best bits over a one-size-fits-all."
Jacobie Olin, president, C2G Advisors; co-founder and president, Olin Realty Group
“The acquisition of TurnKey by Vacasa, if implemented correctly, will be beneficial to their homeowners and guests alike. The homeowners will have a variety of management models to choose from, and the guests will be privy to more differentiated inventory and a broader range of markets.
“Inversely, competitors in these local regions are likely pleased regarding this acquisition and strategizing on new marketing approaches to the homeowners. Also, TurnKey likely has some amount of homeowners that were previously managed by Vacasa.
“It remains to be seen whether this acquisition is the first move in a series of moves that could take Vacasa public.”
Mateo Bradford, strategic partnership and business development, At Ease Rentals Corporation
“My statement is: Those who can, will. That’s going to be the near future in our space. I think we’ll see lot more acquisitions. Some companies have done very well – there was traction prior to COVID. That aspect of our industry is looking to expand and expand rapidly.
“It’s going to be interesting, and I don’t know how that’s going to be for local managers in the space. At the end of day, it’s also part of business. We have to sit with this cultural dilemma of who we want to be and who we’re going to be as industry – will we still be able to provide what makes hospitality great? That personable feel, that organic interaction.
“If we go more corporate and commercial – I don’t think it’s going to be the end of the world. We’re going to see a lot more consolidations…
“There may also be a generational shift within the industry. Maybe there are legacy [family-run] businesses where kids don’t want to be there anymore, or people are looking at retirement and looking to sell.
Given the vast amounts of private equity investment and the resilience of the sector over the last year, more consolidation like this will be inevitable as the checkbooks come out.
Graham Donoghue - Sykes Holiday Cottages
“I definitely think the pandemic played a role in the acceleration of [the Vacasa and TurnKey deal], but they were already heading down that path. [Vacasa’s] whole strategy in the past was acquisition. They’re not the only ones – VTrips has that MO too – they grow through acquisitions besides through one-to-one managers.
“The industry’s been trending that way for a while. I think the opportunity that COVID gave people was the ability to sit down and be more strategic about it. It also let people know on other side of that [those looking to sell] to say maybe I don’t want to do this anymore. I think in both ways it gave people pause to think about the way they want to strategize moving forward. A lot of that will be growth through acquisitions…
“It will be interesting to see what demand is out there too and who is open to selling. I want to hear who’s looking to exit the business and why – who is selling. There’s another side of that story – that’s the idea that I want to know about…
“From a business perspective, I respect [Vacasa’s move]. It shows their acumen and that they make smart business moves. But what does that say about our culture – I think that’s a larger discussion for the industry at large to answer. We’re going to be the ones as a collective body. … PPrivate small managers aren’t going away - we’re never going to get to a place where there’s five short-term rental managers – but there is a discussion to be had about how to help and support local smaller managers in the business who want to be in the business and want to be able to compete and thrive in their markets.”
Alex Aydin, co-founder and CEO, BookingPal
“I think it is very exciting news for the vacation rental space. I think post-COVID most companies have realized the necessity and advantages of having scale. This consolidation makes great sense - they can leverage their size to get concessions from OTAs and improve their margins.
“They are two very well-run operations and will be a formidable player moving forward. I think this will position them to become a publicly traded company through an IPO or via a SPAC, which will provide them with additional funding to continue doing additional acquisitions.”
Vivi Cahyadi Himmel, co-founder and CEO, Alto Vita
“During the pandemic, extended-stay corporate clients are also favoring vacation rental type of assets, with a caveat on delivery of trustworthy quality, safety and security. In remote areas where serviced apartment assets are not usually available, vacation rentals have been the go-to assets with employees working from home and with family. This consolidation amplifies the need to focus on technology and professionalization which will support the rising demand from the digitally nomadic next generation of talent.”