M&A Deal Obstacles

Video

12.07.2018

M&A transactions have their ups and downs – financing contingencies, franchisor approval and egos are just a few factors that affect a successful sale. Watch Unbridled Capital’s viewpoints here from Rick Ormsby.

Topic for today's episode is, what are the biggest obstacles to overcome when completing a franchise-to-franchise transaction? Well, there are several obstacles, financing contingencies, franchise or approval, due diligence, lengthy contract disputes on indemnification clauses, lease assignments, restaurant facility inspections, environmental phase ones on real estate, sales declines during due diligence, acts of God, and lastly, egos of the buyers and sellers. Financing contingencies haven't been such a big deal recently, but several years ago, they dominated the uncertainty of deal closings. Franchise or approval is becoming much more difficult, especially as corporate organizations are cutting staff amidst an increase in transactional activity.

Also, franchisors are becoming much choosier on who they will approve, and they are more meddlesome than ever with slapping new unit development obligations on transfers. One item I would point out is that due diligence and asset purchase agreement negotiations are becoming much more difficult than in previous years. Why? Many operators are now backed by investors, and they have a fiduciary responsibility since they aren't spending their own money. In the not too distant past, a deal could almost close on a handshake or on a napkin. Nowadays, the buyer comes from Kansas City, as an example, and the investor from New York. It is the opposite of a handshake deal. If you'd like to talk about any other M&A topics, we'd be honored to do it. Please reach out any time. Thank you.