Not free sailing for Taste Holding’s CEO Carlo Gonzaga, but huge success.

Franchisor and restaurant group Taste Holdings has managed to grow from one store to almost 600 in six years, its shares have gone up 120% in the past year, and this week it made headlines with its controversial Fish & Chips Co Zuma advertisement, which was banned from the SABC.

Speaking about growth through acquisitions at the FNB Franchise Leadership Summit on Wednesday, Taste CEO Carlo Gonzaga says he is often challenged with the statement, “But you’ve grown by acquisition…”, as opposed to traditional or organic growth within an existing business.

Gonzage revealed that “growing by acquisition is not just a quick and easy way to achieve rapid expansion, it’s not an easy road and neither is franchising -70% of acquisitions fail to achieve expectations while 50% of acquisitions actually destroy value.

Important when considering an acquisition, is who to acquire. “Keep in mind strategy vs opportunity. There are many reasons to acquire. It could result in greater synergy in the business, like when we bought St Elmo’s in 2010. When we bought Maxi’s we leapfrogged in terms of growth. Skills could be gained – such as the St Elmo’s sauce-making facility. Competitors can be kept at bay. And economies of scale could mean greater buying power.”

Gonzaga warns that when buying a business, one needs to put a value to the reasons why, as not to overpay, and also consider what you would not buy. “To do this, understanding how the business makes money, and how you could add value, are crucial,” he says.

When it comes to pricing, value and finding the cash to acquire, Gonzaga says bankers are great at calculating the risk, but do not always want to take it. He refers to Warren Buffett: “Price is what you pay, value is what you get”.

For Gonzaga, the most controversial step when acquiring, is “having a peek” or due diligence. “If you’re buying a business, you need to make the decision, thus you need to put in the effort – but have the facts audited. Don’t mistake the unfamiliar with the unlikely.”

Once the acquisition is done, or “after the honeymoon” as Gonzaga calls it, focusing on integration is key. “When you buy a business, it’s yours – so change the locks and alarm codes. You’ll have to put in double the time, twice the money and three times the effort,” he says.

Gonzaga acquired the Scooters pizza chain at the age of 26, and currently heads up the same team that also acquired the Maxi’s brand in 2005. He created and listed Taste Holdings in 2006, which later bought NWJ Quality Jewellers, St Elmo’s and the Fish & Chip Co.

Source: moneyweb.co.za