Five Key Lessons to an Effective Franchise Acquisition

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Acquisitions are critical to the evolution of most businesses. 

By Peter Holt, CFE

I have been active in the franchise community managing franchise systems in both domestic and international markets for nearly 30 years. Most recently, I was president and CEO of Tasti D-Lite and Planet Smoothie. I was with the company for eight years; initially as COO and for the past three years as president and CEO. Among my responsibilities, I led the successful acquisition of Planet Smoothie by Tasti D Lite in 2011 and subsequently in June, I managed the acquisition of Planet Smoothie and Tasti D Lite by Kahala Brands.

If there is a common theme to my career beyond franchising, it is experience with acquisitions. Virtually every company I have worked for has acquired additional companies or has been acquired during my tenure. I have been an active participant (if not leading the process) in 12 major completed acquisitions and dozens more that ultimately did not result in agreement. From these diverse experiences I have learned the following lessons:

1. Ask the correct questions in the due diligence process. 

Before you drill down on the financial and legal review, focus on the essential question of why the company is being offered for sale. Is the purpose to buy out the founder or investors? Is it to raise additional capital for expansion or other key initiatives? Or, is it to address issues with the franchise model due to market condition changes? There are myriad other potential reasons. Understanding the “why” of the sale goes a long way in tailoring the due diligence to ensure you are gaining the specific and key information necessary to make good decisions.

2. Meet the leaders in the franchise network you are seeking to acquire.  

Franchising is a relationship driven business. As you move into the final stages of your due diligence, meet with the most important franchisees, area developers and, if relevant, international master franchisees in the system. Typically this must be done under the supervision of the franchisor or the investment banker. Before Tasti D Lite acquired Planet Smoothie we created a list of key questions and interviewed 25 franchisees and area developers controlling 75 percent of the system. These conversations gave us critical insights into the system. It also created an excellent basis for the development of our relationships with the franchisees post-acquisition.

3. Understand roles and responsibilities of the corporate staff.  

Request detailed job descriptions and performance reviews as a part of the due diligence. Based on your own company’s structure and needs going forward, you will be making decisions about which staff will remain in place post acquisition. During the acquisition process it is most likely you will have limited access to staff members. Once the acquisition is completed, it will be important to spend time with the retained staff and learn about their history and experience with the company. As the acquiring company, it is easy to dismiss the information and perspective from the previous regime. This is a mistake. Listening to those who have experience within the system will help you to understand issues that were not as clear pre-acquisition. You want to minimize the uncertainty and concerns around a transaction. Listening helps address these concerns.

4. Create your transition plan long before the acquisition closes.  

One of the scariest conversations I had while a company I worked for was in the final stages of being acquired was being told several days before the close that there was no transition plan in place. An example of how to correctly handle a transition can be found in part of the final due diligence when Tasti D-Lite acquired Planet Smoothie. We created a detailed Excel spreadsheet, broken down by department, which listed key activities for the transition, who was responsible for each task and the timeline expected for completion. It covered key areas such as administration, legal, technology, operations, training and education, marketing and public relations, franchise development, real estate, construction and design, product management, and distribution and supply. It took a great deal of time to create this plan, but was an essential guide through the transition process, minimizing the disruption of the transaction for everyone concerned and establishing processes for accountability.

5. Create a detailed plan for communication with staff, the franchise network, vendors, and customers as the integration of the business takes place.

It is not enough to send out a press release and a letter to the franchise network and the vendors. The first 90 days is a critical time for a transaction. No one is comfortable with change. This is a time when all parties are trying to understand the transition and how their own role will change going forward. My experience has been that the absence of reliable information feeds people’s fears and has the potential to be far more destructive to the network than responsible sharing of information, even when it is difficult to do that. You cannot over-communicate during this period. The more clearly your staff understands the vision going forward, the more effectively they can advocate your position.

For example, when I was with 24Seven, we acquired vending companies and converted their vending routes, historically driven by corporate drivers, to routes to be sold to franchisees. The corporate drivers were understandably uncertain as to what the change would mean for their jobs. Some routes would be eliminated.  Others could be converted and sold as a franchise. We held an initial meeting with the staff to outline and gain their support for the conversion. We met with all the drivers and regularly communicated with them concerning the status of the process.  While some of these meetings were difficult, in the end we were able to implement the program with a minimum of disruption to the ongoing business.

Acquisitions are critical to the evolution of most businesses. Handling the process well by creating a detailed plan of action, conducting careful due diligence, listening to the key players and communicating clearly is the most effective way to maximize the value of the transaction.

Peter Holt is the former president and CEO of Tasti D-Lite and Planet Smoothie, and a former IFA board member. Find him at fransocial.franchise.org.

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