Multi-Unit Franchisee Magazine Issue IV, 2016 | Page 72
ExitStrategies
BY DEAN ZUCCARELLO
Let’s Make a Deal!
The do’s and don’ts of successful transactions
I
n nearly 30 years since founding The
Cypress Group, I have encountered
a multitude of client types on both
the buy and sell sides. While the
unique circumstances of each deal can
vary significantly, a number of common
threads can make or break a divestiture
or acquisition. Here are some “do’s and
don’ts” of successfully managing a transaction from both the buyer and seller
perspectives.
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’re trying to sell all
Seller do’s and don’ts
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.
• 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 a spect of their
business. Are you divesting one brand to
concentrate on another? If so, your postsale plan should address how your operating platform must evolve to sustain an
alternate business model. We’ve advised
70
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.
•Know your franchisor. 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 do’s 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 center your
acquisition strategy around these criteria.
Don’t start actively pursuing transactions
before you have a strategy in place.
• Financing. Most people wouldn’t
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