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Chapter 12. Harvest > A Trade Sale or Merger with Another Company: A Franchisor...

A Trade Sale or Merger with Another Company: A Franchisor’s View

Why would someone give you a lot of money for your company? Because she believes she can make more money than you did. The sale of one company to another or merger of two companies occurs because the players believe the combined entity will better create wealth for the owners. Franchisors can uniquely position themselves for a trade sale in at least two ways:

A supplier might buy the franchisor to secure the channel of distribution. Because franchising is a highly efficient channel of distribution, the suppliers to a franchise have a vested interest in maintaining their distribution network. Those suppliers become logical candidates to purchase the franchisor. Why did Pennzoil purchase Jiffy Lube? Pennzoil needed to secure sales of millions of gallons of motor oil annually. The strategy in a supplier-related trade sale is to mirror your development of outlets in geographic locations with the distribution needs of a major supplier. Developing a relationship with key suppliers leverages your company. Volume discounts, extended trade payable terms, and even investment capital can come from suppliers. Relationship building is both art and science. Clearly, the supplier has a vested interest in a customers’ success.

A company might buy a franchisor to acquire the franchising growth skills of the company. A second strategy is related to franchising as a competency. The knowledge of and ability to create a franchise system is a transferable skill. Another company might have a division or even a concept that requires a concept growth expert. Alternately, a conglomerate might purchase a sophisticated franchisor, then follow-up with the purchase of what they might see as less well-managed franchises. By purchasing a franchise company, the acquirer gains the franchising knowledge that can be transferred to other concepts. That appears to have been the strategy of Allied Domecq, a major international spirits company. They acquired Dunkin’ Donuts and almost immediately put the management team to work buying other franchisors. The result was Allied’s acquisition of Baskin Robbins and Togo’s Restaurant. TIP 12-2 discusses some of these very brands.


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