Exit Strategies

Mergers and acquisitions (M&A) have been an instrumental component in franchising over the past two decades, particularly as a growth vehicle for expanding companies. Historically, most transactions in franchising have concentrated more on the "A" than on the "M." Some of the primary drivers for this have been cultural and business trends deeply entrenched within franchising. However, the current global financial crisis and franchising's own changing dynamics may alter this.
Why acquisitions have dominatedHistorically, the franchise industry has been predominantly represented by entrepreneurs in the form of franchisees and emerging franchisors. Given this fact, franchise companies often have a "lifecycle" pattern similar to that of the founding entrepreneur...

Since mid-2008, the economy, consumers, and the restaurant industry have been in the vice grip of the country's deepest and longest recession since the Great Depression.

Finally, a light at the end of the tunnel is beginning to emerge. Most economists are now saying we have reached or passed the bottom. While the going is certainly still rough, business conditions are beginning to improve, unemployment is stabilizing, and consumers are dipping their toes back in the spending pool. Capital flow is increasing, with equity investors coming off the sidelines and lenders beginning to seriously pursue new debt facilities for borrowers.

The economic recovery will bring increases in consumer spending, restaurant traffic, transaction counts, and sales levels...

Robert came to us to help him develop a 5-year Transition Growth Plan so he could sell his company and retire. He had high expectations for what the sale would net him financially, based on his presumed growth rate. Unfortunately, his presumptions were well beyond business reality. He had never utilized a written strategic growth plan or a business model innovation program. And the stagnant state of affairs which made up his company were proof of this.

The Next Step Program identifies the top 12 principal reasons which have caused business owner transitions and exits to be unsuccessful. Each of these reasons impacts the company's ongoing annual profitability as well as an owner's transition and future exit results. This article addresses the 7th of these 12 reasons:

Jake was visibly upset when he came to see us. He had been planning to retire in 3 years by age 55, based on the combined value of his personal investments and his company. This was now on hold for an indefinite period of time. Like many, he had suffered a significant hit in the 2008 through 2009 stock market declines. He wanted to visit about the benefits of a comprehensive wealth plan - something he hadn't taken the time to explore in the past.

The Next Step Program identifies the top 12 principal reasons which have caused business owner transitions and exits to be unsuccessful. Each of these reasons impacts the company's ongoing annual profitability as well as an owner's transition and future exit results. This article addresses the 6th of these 12 reasons:

The historical consolidation of franchise finance sources (local and regional banks, and other institutions) has led to only a handful of major players financing franchised companies over the last several years. These institutions, all well-known household names, have dramatically decreased leverage multiples while increasing interest rates and, most importantly, are tightly preserving capital until general economic conditions show signs of stability. As these lenders limit the flow of debt capital to franchising (or shut off lending completely), there are some trends all franchise owners should consider to ensure their financing needs are met during this recession.

Several recent economic indicators were not as bad as many investors anticipated...

Sam and Louie had been in business for about ten years, operating a chain of retail clothing stores. They were 50/50 owners in the corporation. When Sam approached us he had already been working for about 9 months to try to come up with a proposal which Louie would accept for dividing up their operations.

While they had gotten along well in the early years, Louie's hidden substance abuse problem had gotten the best of him. He wouldn't consider any type of reasonable purchase by Sam or a sale by Sam to Louie. Sam and Louie had never entered into any type of a Buy-Sell Agreement, based on the belief that they would always be able to work things out. No type of mediation was successful. Louie was simply unreachable regarding any type of purchase and the two were deadlocked and unable to reach agreement on any operational issues that needed to be dealt with...

Craig had a sales organization which he had built but had just recently suffered a serious setback when he came to us to talk about his Transition Growth Planning. He had helped develop three key employees whom he felt were primed and ready to eventually take over and purchase the business from him. Unfortunately, he had not yet communicated his vision for these employees to the employees themselves. Shortly before he met with us, these three key employees decided that their best future would be to develop a new business on their own. So they left Craig and took their book of business with them. Much of this business had been initially developed by Craig, who had been transitioning his contacts over to these three individuals.

We have identified the top 12 principal reasons we've seen where business owners have failed to plan, which has caused their transitions and exits to be unsuccessful...