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 made headlines with its controversial Fish & Chips Co advertisement depicting Jacob Zuma and his family, which was banned by the SABC.
Yet, speaking about acquisitions at the FNB Franchise Leadership Summit on Wednesday 28 November, 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 in an existing business.
“Growing by acquisition is not 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,” he said.
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 warned that when buying a business, one need 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 said. When it comes to pricing, value and finding the cash to acquire, Gonzaga said bankers are great at calculating the risk, but do not always want to take it. He referred to Warren Buffet: “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.
The response to the FNB Franchise Leadership Summit has been overwhelmingly positive and plans are in the works to repeat the popular event this year with other high profile speakers in franchising.