Growth After Mergers

For Mushkin, Sagittarius Brands gave him new resources and helped him take an aggressive approach. He says the previous Del Taco owner pursued a conservative approach, focusing on company unit growth close to the core markets.

“Under Sagittarius, the mission is more aggressive, opening new markets, and focusing on franchising,” Mushkin says. “This has been a tremendously positive development.”

Mushkin says Del Taco has more markets to penetrate and “our leaders are more aligned with growing the brand—and our sister brand, Captain D’s—through new franchises. And as part of a larger organization, there are more resources available to me now to help my team of field recruiting directors seek out the best candidates.”

In the case of Kahala Cold Stone, “[Cold Stone] went from one brand to 13 brands,” says Doug Ducey, chief executive officer of Kahala Cold Stone. “We went from $500 million in system-wide sales to $1.1 billion in system-wide sales, and we went from 1,400 operating units to 4,600 units.”

Individual Franchisees

While size and revenue potential increases after mergers, what happens to the existing franchisees?

Certified Franchise Executive Jack Pearce, a franchise consultant who specializes in mergers and acquisitions, says franchisees are company stakeholders, and deal-makers take them into account when considering the details. But while board members and executives might like the deal, franchisees’ opinions traditionally vary, Pearce says.

“If there’s a decision made at the corporate level to merge one franchisor to another, you’re likely to get that many different opinions on whether it a good or bad thing,” he says.

Specific to the quick-service segment, Pearce says, operators look at their new parent company’s buying power.

“If the [new company] provides new added buying power—so I can buy materials less expensively and improve margins—the merger is a good thing,” he says.

On the flipside, if the new parent company has little brand equity, a poor field support team, and doesn’t reinvest much money into national or regional marketing, “that’s a bad thing,” Pearce says.