If there was ever a time for the franchisees of Angus & Robertson (A&R) to band together and make an offer to buy the business from the administrators of the franchise’s failed parent REDgroup Retail, this is it.
With reports emerging this week that the administrators are still desperately searching for a buyer for REDgroup Retail’s Australian book business, which includes a handful of company-owned Borders and A&R stores, plus the A&R franchise network, franchisees have perhaps a final opportunity to take matters into their own hands.
That is, if enough franchisees can agree among themselves that lodging a bid to buy the network is desirable, and this may be problematic.
About half the franchise network announced plans to secede from the group to trade as independent book retailers prior to Easter. Their argument that they could terminate their franchise agreements because the franchisor was insolvent stood on shaky ground, and after a legal challenge by the administrators, they reluctantly returned to the fold.
Consequently the franchise is divided between those who stayed and those who wanted to leave. This would prove difficult for any potential external buyer, and devalues the franchise group as an asset because future royalty income may be limited to only half the group if the rebel franchisees repeat their attempts to leave.
But for those franchisees who remained loyal to the brand, suggestions by the administrator that the group will close if a buyer cannot be found must be worrying. Of course, the closure of the group does not include the closure of individual franchisees’ stores, but would mean the closure of the remaining company-owned stores and the closure of the REDgroup retail office, which coordinates all the support services provided to the franchisees.
The franchisees who previously decided to leave the group would not be so concerned about this occurring. Their attempt to leave indicated they no longer valued the brand and support services provided by the national office.
However, the loyalists who remained faithful to the brand would be hit hardest, and therefore stand the most to gain by putting a bid together to buy the franchise to preserve their businesses.
Only time will tell whether such a bid will transpire, although it is not without precedent when the franchisees of Collins Booksellers banded together several years ago to buy that group from administration, and have since continued to grow the network.
However the nature of the administration process itself generally overlooks the opportunity for internal buyers to present themselves.
Administrators often take a “fast bucks” approach to the sale of an insolvent business – get as much money as quickly as possible by rushing a buyer through a fast-paced sales process.
This approach can’t be expected to work with franchisee buyers. For a start, they have to overcome their initial shell-shock at the news their network is in trouble, and their understandable concerns that the wheels have fallen off the wagon to which they have hitched their future business success.
For A&R, the initial shell-shock has also been followed by some significant aftershocks. The continuous stream of company store closures being one, and the civil war between the rebel half of the network and the administrators.
Then there is the problem of leadership and finance.
External buyers may present themselves as single entities with the cash or access to finance to complete a deal in a short timeframe.
Franchisee internal buyers firstly need somebody to start coordinating any attempts to put a bid together, and this isn’t a role fulfilled by the administrator.
Usually the group dynamics in such situations mean that the last person to step backwards becomes the default leader and spokesman, or alternatively, the position could be quickly hijacked by parties who may seek additional advantage for themselves along the way.
But assuming that a leader emerges to coordinate the difficult task of garnering support for a franchisee buyout, the next challenge is to raise the funds, and this could be an insurmountable hurdle. Prior to reaching this point, franchisees have probably already put up their homes as security to get into the franchise in the first place, and may be running out of equity or assets to put up as further security to raise even more funds to buy the group out of administration.
In other words, the will to undertake a buyout may not be backed by the substance to complete.
But until someone within the group makes an effort to have a go, the alternative is to pray the administrators find a buyer who can bring more to the table than the current owners. This might be too big a bet to hedge, because the alternative is for the administrator to wind everything up, and this may well result in the death of the brand, the operating systems and any concept of support.
And for those franchisees who remain, this could be the beginning of the end for their own businesses.
Jason Gehrke is the director of the Franchise Advisory Centre and has been involved in franchising for nearly 20 years at franchisee, franchisor and advisor level.
He advises both potential and existing franchisors and franchisees, and conducts franchise education programs throughout Australia, and publishes Franchise News & Events, a fortnightly email news bulletin on franchising issues and trends.
Smart Company is the leading online publication in Australia for free news, information and resources catering to Australia’s entrepreneurs, small and medium business owners and business managers.
