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 MULTI-UNIT FRANCHISEE IS S UE IV, 2016 muf4_c_exitstrategies(70-71).indd 70 10/6/16 5:18 PM