GTB 737 banner Yudala banner

Franchise: The dos and don’ts of successful transactions

By News Express on 26/12/2016

Share on facebook Yahoo mail icon Gmail icon

Views: 1,073


Encountering a multitude of client types on both the buy and sell sides, there exist several uniform factors that make or break transactions. While the unique circumstances of each deal can vary significantly, a number of common threads can make or break a divestiture or acquisition, a sell or buying transactions. Here are some “dos and don’ts” of successfully managing a transaction from both the buyer and seller perspective.

Seller’s dos and don’ts

Decisiveness: When it comes to being a successful seller, decisiveness is key. It is imperative to thoroughly contemplate all the major decisions that may come into play in a sale process. This way, you and your working group have a shared philosophy and action plan to respond to both the known and unknown. Indecision or deviating from a planned course is one of the top reasons transactions fail, as it can lead to reevaluating, renegotiating, and re-trading. As a seller, do develop a transaction philosophy, and do map your game plan and stick with it. Don’t waffle and fall victim to indecision or a significant change in mindset.

Post-sale planning: It is critical to have a post-sale plan in place. The best way to establish your plan is to answer the following question: “Why am I selling right now?” The answers to that question are numerous, but are led by one or two strong desires. Let’s say the answer is you are ready to retire. A retiree’s post-sale plan should focus on wealth and life stability. Have you worked with your advisors and tax counsel to understand valuation, net proceeds, and other sources of funds, so you are able to maintain a safe, stable cash flow to live your life comfortably?

A multi-brand operator might be selling to focus on a different aspect of their business. Are you divesting one brand to concentrate on another? If so, your post-sale plan should address how your operating platform must evolve to sustain an alternate business model. We have advised sellers of large, stable QSR brands on how to evolve their development, marketing, and training infrastructure to adopt a fast casual development agreement. The two businesses are certainly similar, but the infrastructure needs and cash flow planning vary, particularly in the early years. Also important is that all post-sale planning should happen in conjunction with your decision to sell. This way you know up front if you are trying to sell all of your assets or if it makes more sense to retain some.

Do understand your post-transaction operational and financial picture as part of the decision process. Don’t go into a sale blindly and unsure of your future plan. If you are a franchisee looking to sell your restaurant assets, it would behoove you to be aware of your franchisor’s growth and acquisition strategy. Is your franchisor currently selling company-owned restaurants, acquiring franchisees, or developing new units themselves? Are they looking to bring new franchisees into the system or expand with existing ones? Even if the answers to these questions are not perfectly known, a thoughtful analysis of your business geographies, operational and financial metrics, and development rights will help you prepare for the franchisor’s reaction. It is in your best interest to be well versed in your franchisor’s approval guidelines and expansion plans and select a buyer accordingly.

Do know your transfer rights, and do be aware of what makes a buyer attractive to your franchisor. Don’t let the franchisor dictate your process, and don’t select a buyer that won’t pass their approval process or provide them leverage to force an alternative that is less than ideal. Identify and own potential problems. It is almost impossible to operate a multi-unit restaurant business without experiencing some issues over time. Store closures, lease expirations and assignment issues, specific unit performance problems, environmental issues, and more will affect your business at some point. It is understandable to want to mask any struggles your company has experienced, but it is crucial to resist this urge. Any problems concealed initially will surely be transparent during due diligence, which discourages the buyer and hinders the transaction process. A constructive business issue identified late in a transaction is more punitive than if articulated in advance. Do have any business, operating, and legal issues identified, and do have a plan for addressing them before bringing a transaction to market. Don’t ignore problems and think prospective buyers won’t identify or overlook them.

Buyer’s dos and don’ts

Decisiveness: As with sellers, it is imperative that buyers operate in a direct and decisive manner. This means establishing your target criteria before you begin looking at acquisition opportunities and sticking to that game plan. When confronted with the sheer breadth of options in the multi-unit restaurant business, it is easy to get distracted. Instead of running yourself ragged looking at every deal in the market, set yourself up for success by knowing exactly what you are seeking. If you find casual dining concepts the most enticing, don’t waste your time and energy examining QSRs. Do decide which factors make a deal most compelling to you, and do centre your acquisition strategy around these criteria.

Don’t start actively pursuing transactions before you have a strategy in place. Most people wouldn’t go to the supermarket without knowing how they planned on paying. Not everyone applies this logic when they seek restaurant acquisitions. Buyers should establish strong relationships with various financing sources before they even begin looking at buy-side opportunities, so when the right deal comes around they aren’t scrambling to secure the acquisition capital. Further, a bid that details the buyer’s proposed debt/equity structure, with a signed commitment from a capital provider, is substantially more compelling to a seller than a bid lacking these things. Do have a financing options in place.

Don’t wait for a sell-side advisor to tell you your bid was interesting, but their client chose the buyer with more certainty around funding. Whether you are an existing franchisee or not, it is vital to know the franchisor you will be dealing with. What is their current growth strategy? What kind of franchisee do they prefer? Are they trying to bring new blood into the system or bulk up the operating platforms of existing franchisees? This last question is crucial, especially if you are looking to enter a new brand. Before pursuing a specific opportunity, meet with the franchisor to discuss their approval process and present your operating plan and team. Transactions move far more easily and quickly when a buyer is preapproved and in good standing with the franchisor. Do establish this relationship early. Don’t wait until the bid process is complete to learn that the franchisor doesn’t view you as a viable buyer. Be aggressive. In today’s market, restaurant acquisitions are highly attractive, making for an exceedingly competitive environment.

Buyers must be aggressive. This is especially true when the transaction is the buyer’s initial investment in a brand. Existing franchisees may have built-in advantages (e.g. predicted synergies that allow them to make a higher bid, and/or having strong ties with the franchisor). New entrants be wary: you may have to pay a premium to tip that first deal in your favor. Buyers must always be prepared to move quickly as delays often cause sellers to become discouraged or reexamine the sale. Another way to anger a seller and potentially lose a deal is to delay the purchase process in an attempt to re-trade at a lower price. If you’re actively looking to buy and you come across the right deal, do pursue it aggressively. Don’t dawdle and miss your opportunity.

Dos and don’ts for all

Have proper advisors. Whether buyer or seller, engaging experienced, industry-specific investment advisors and transaction-specific legal and tax counsel is paramount to your success. Acquisitions and divestitures alike have many moving pieces that can seem overwhelming without proper counsel. To achieve the utmost success, enlist the help of people who know how to plan, position, and execute transactions to your benefit. The resources required to navigate the intricacies of a multi-unit restaurant transaction are considerable. Do hire professionals with proven insight and transaction expertise in the industry’s inner workings. Don’t rely solely on your everyday business advisors or attorneys.

Be realistic: This is possibly the most important concept in successfully completing a transaction. Both sides must be realistic about their expectations. If a seller is stuck on an unrealistically high purchase price or multiple, finding the right buyer will be a far greater challenge. On the flip side, it isn’t realistic for a buyer to propose a purchase price based on a 2009 transaction multiple. The most realistic thing for both parties is to recognise that every transaction is a constantly moving, two-way street. If you want a deal to be successful, the negotiated terms must be satisfactory to everyone involved. Do view transactions in an objective and realistic manner. Don’t rely on subjective inclinations or conjecture.

We would take other perspectives of this article next week as we discuss further. However, you can contact me for business advisory services and training - send me a message via WhatsApp or SMS.

•Lawrence Nwaodu is a small business expert and enterprise consultant, trained in the United Kingdom and the Netherlands, with an MBA in Entrepreneurship from The Management School, University of Liverpool, United Kingdom, and MSc in Finance and Financial Management Services from Rotterdam School of Management, Erasmus University Netherlands. Mr. Nwaodu is the Lead Consultant at IDEAS Exchange Consulting, Lagos. He can be reached via nwaodu.lawrence@hotmail.co.uk (07066375847).

Source News Express

Posted 26/12/2016 5:15:26 PM

 

Share on facebook Yahoo mail icon Gmail icon


 

CLASSIFIED ADS

Let us build the most comprehensive online database of worthy and credible Nigerians from all walks of life. It is worth doing!

Loss Off Your Belly Fats, Upper Arm Fat and Body Fats In 2weeks Time.. Click HERE To Start Now!

 

You may also like...
10 shot as bullets fly at Ogun APC...

Trapped gold miners resurface after missing 5 days...

Corruption: Igbo Leaders of Thought fault Buhari

Military keeps mum after 315 Nigerian troops flee...

Akwa Ibom monarch’s wife gives birth in kidnappers’...

Igbos ready to dump PDP for APC —OKOROCHA...

Passengers stranded at Kaduna airport as airlines insist...

Nigeria’s “owambe” culture: Any justification?

Moderate to poor visibility to prevail across Nigeria...

FG approves 850 pilgrim slots for Anambra

Our plan to create thousands of jobs for...

Army dismisses report of fresh mutiny, castigates cowardly...

 

Latest News Lawmaker offers $1.6m to behead actress Holy spirit warns Obiano •Details by Ebube Muonso, who predicted his victory Assailants kill 30 herdsmen in Adamawa Soldiers storm militants’ camp, nab 7 suspects; recover arms, human skulls Kinsmen call for ex-minister’s arrest •Allege impersonation, gang-up Badoo: Police arrests 2 over Lagos church killings Skye Bank releases new TV commercial highlighting the importance of consumer power in modern marketing Mugabe’s successor to be sworn in on Friday Uber fined $8.9m for using criminals as drivers Develop Olodiama Kingdom, Egbema youths tell Edo Govt •Felicitate with Alagbabenafa III George Thorpe identifies 6 key tasks for research and action in advertising Jaw Jaw Africa outlines objectives

 

Most Read Nigerian female sex addict opens up, says ‘I like it with both men and women’ (295,286 views) NUDE PHOTO OF OMOTOLA JALADE-EKEINDE surfaces online (278,887 views) Shameless Genevieve Nnaji exposes breasts in public (225,592 views) Finally named: The full list of friends of Nigerian female sex addict who prowled Facebook (189,798 views) Igbo scholar disgraces Femi Fani-Kayode •Demolishes claims on Igbo/Yoruba history with facts and figures (181,484 views) OLUMBA OLUMBA OBU (the one who called himself God) IS DEAD (166,489 views) Breaking News: POPULAR REVEREND CONVERTS TO ISLAM in Kaduna (Nigeria) (144,309 views) THE FINAL DISGRACE: Igbo scholar unleashes more facts about Igbo/Yoruba history, finishes off Femi Fani-Kayode with second article (130,727 views) OBJ’s son reported dead in Lagos plane crash •Names of more victims emerge (127,433 views) Lagos plane crash: Journalist releases victims’ names (116,615 views) Gunmen kill ASP, 2 other police officers in vain bid to kidnap Rivers PDP chieftain (113,905 views) My wasted years in Olumba Olumba Obu’s Evil Brotherhood (108,196 views)

 

Categories Advertorials (3) African Press Organisation (81) Art & Literature (31) Business (2,780) Business Verdict (26) Columnists (769) Complaints & Requests (93) Enterprise & Opportunities (187) Entertainment (405) Features (510) Global Business Monitor (192) International (1,652) Interviews (138) Live Commentary (28) Love Matters (83) News (30,429) Opinion (838) Pidgin (9) Politics (4,119) Religion (649) Sports (1,357) Stock Watch (24) AMA & Al Jazeera Global Update

 

UBA mobile app

CBN Words on marble

 

 

Argentina vs Nigeria

 

APO Group Partner

 

CLASSIFIED ADS

Loss Off Your Belly Fats, Upper Arm Fat and Body Fats In 2weeks Time.. Click HERE To Start Now!

Let us build the most comprehensive online database of worthy and credible Nigerians from all walks of life. It is worth doing!

GOCOP Accredited Member

GOCOP Accredited member

 

 

Africa Media Agency and Al Jazeera

Advertisement



 

 

CLASSIFIED ADS

Let us build the most comprehensive online database of worthy and credible Nigerians from all walks of life. It is worth doing!

Loss Off Your Belly Fats, Upper Arm Fat and Body Fats In 2weeks Time.. Click HERE To Start Now!