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Unbridled Capital

Overlooked Expenses in a Sale

Video

04.02.2019

M&A transactions can be expensive if you aren't prepared and don't have an advocate working for you. In the restaurant industry, almost no larger franchisee will sell without an investment banking firm representing them in large part because they understand their value more readily. However, I see mid-size and smaller franchisees making big mistakes in not knowing what they don't know and thus costing themselves countless hours in unexpected costs in a sale.

The first mistake made is the amount of time it takes to sell a franchise company. We advise clients that a deal takes about 300 hours of total time to complete. Our involvement can reduce a franchisee's time by at least 50% or more. How much is your time worth? 150 hours at $200 per hour is $30,000 in opportunity costs. The second mistake is overusing your attorneys and CPA. While we never replace these trusted advisors, most of them aren't experts in franchise M&A transactions. Our involvement likely reduces these costs significantly.

Another common mistake is not understanding and negotiating who pays transaction fees, closing fees, appraisals, transfer fees, transfer taxes. These different items can very quickly add up to $100,00, or more. And our involvement will likely reduce these costs as well. Sellers are often ill prepared for the due diligence process of a deal. Larger buyers will send along a due diligence checklist that is often 40 to 100 items long. Franchisees become overwhelmed. Deals then slow and deal risk spikes. When deals slow, prices are at risk. This is the cardinal rule of M&A transactions. Also, find a neighboring franchisee who's been through a sale and ask them about Q of E, quality of earnings, if they sold to a financial buyer. They'll likely scream over the phone and tell you that you need an advisor to help you.

Another massive consideration, buyers will often try to retrade their original offers, and this can cost hundreds of thousands of dollars or more. Without the proper representation, sellers give away too much or they agree to new terms that will cost them dearly. Sellers normally are ill prepared for inspections that most large buyers now insist upon. These buyers will bring large inspection teams to each restaurant and come up with a laundry list of items to repair that is longer than Santa's wishlist. We can help negate many of these expenses.

The good news? Unbridled Capital does all of this in a transaction, saving hundreds of hours and hundreds of thousands of dollars for our clients. Our financial modeling, our experience and due diligence and our expertise in supporting our client's interests, all of these result in an outcome that should greatly exceed our fees. This doesn't even account for the fact that we will find much, much higher prices than our clients can do on their own even when talking with the same buyers. We'd be honored to talk with you anytime about why Unbridled Capital is one of the best return-on-investment decisions you'll ever make when selling or financing your franchise business.