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. 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 option 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.
Do’s 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 busness advisory services and training – send me a message via WhatsApp or SMS.
– Nwaodu Lawrence Chukwuemeka (Ideas Exchange Consulting).
nwaodu.lawrence@hotmail.co.uk (07066375847).
