Jacqui Walker

I think consolidation is probably inevitable in franchising, but will there be a cost?

Consolidation in the franchise sector is hotting up

ASX-listed Retail Brands Group, the owner of the bb’s café and Donut King chains, is shaping up as the biggest franchise consolidator in the Australian market. The company, which listed last year June, announced last week that it has won the battle for Brumby’s Bakeries.

Brumby’s board of directors has unanimously recommended shareholders accept Retail Food Group’s increased cash offer of $3.40 a share for the bakery chain. The offer beat a $40 million management buyout offer led by co-founder and managing director Michael Sherlock in January, which followed RFG’s $38 million takeover offer last December.

The new offer is an 88% premium to Brumby’s closing share price of $1.80 on 15 December last year, just before RFG launched its hostile takeover of the company. The MBO team has sold 3.9% of its 21% stake in the company to RFG, with the rest to be sold later on. This has pushed RFG’s stake in Brumby’s to almost 20%.

Before the deal was even announced, there were newspaper reports that RFG were interested in the 350-store chain Michel’s Pattiserie. Chief executive Tony Alford has since confirmed it.

It is just over a year since John Livy and ANZ Private Equity bought 350-store bakery and cafe chain Michel’s from founders Noel Roberts and Noel Carroll. And they have indicated they might be interested in selling it.

Executive director Livy and his investors say they have closed stores, centralised ordering and administrative processes to set the company up for more profitable growth. So why would they want to sell so soon? Less than a year would represent a very fast turnaround – even for private equity.

These deals follow the sale of ice cream chain Wendy’s to the Asian private equity firm Navis Capital Partners, bookseller Angus & Robertson’s sale to Pacific Equity Partners, and the purchase of a 15% stake in the gourmet pie chain Pie Face by Brett Blundy, co-founder and biggest shareholder of Brazin, through a private company, Globell Glen.

It seems that franchise culture is shifting. Franchising is a passionate business usually run by franchisors with entrepreneurial spirit and drive. Consolidation probably means better systems and process and potential efficiencies.

But will it be as much fun?

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Comments

Dianne Grey writes: John Livy and ANZ are keen to sell Michels as it is unsuccessful. I purchased a store in Terrigal and after trading for only 12 months have lost over $150,000. We are trying to save our family home but looks like we will lose it too. Michels gave us back some of our money and closed the store keeping all the equiptment which they would have on-sold to other stores. John Livy was informed by very good sources that a store would not work in this cultural area as previous stores in similar areas such as Neutral Bay and Balmain had been unsucessfull. However, John Livy still gave approval for a new store in Terrigal knowing the only ones to lose financially and emotionally would be the franchisee… Michels is far from the reputable company that they portray themselves as and people need to be made aware.