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Restaurant Mergers and Acquisitions
In the past two months, the restaurant industry has seen a lot of major players merge or be acquired. How does all this movement impact franchise sales and owner buying power?

Restaurant owners and executives are faced with constant challenges, which traditionally include marketing, operations, and real estate. But these days, owners need to be aware somebody’s watching and maybe even wants to buy their brand.

For the past five years, private equity players have been eying mid-size restaurant chains with about 100 stores, says Richard Sharoff, chief executive officer and senior partner of FranPoint Partners.

“People used to think of restaurants as a way to lose money. Now, they see restaurants as a great investment,” says Sharoff, also the founder of MaggieMoo’s International. “This type of awareness opens up a lot of opportunity.”

From a franchising perspective, a single brand is not as attractive as a brand with several sister restaurants, says Thom Crimans, president of FranNet MidAmerica, who shops franchise opportunities to individuals and companies.

“In our business, we like working with a franchisor that has multiple brands,” Crimans says. “They’re usually more stable, more experienced, and they understand franchising.”

Crimans does admit, however, that 2007 has had a staggering amount of mergers and acquisitions. Just in the past two months: Baja Fresh—which in the past year was sold by Wendy’s—acquired La Salsa; Kahala merged with Cold Stone Creamery to create Kahala Cold Stone; Sun Capital—which last year purchased Fazoli’s—scooped up Friendly’s for $327.2 million; FOCUS Brands—which last year bought Schlotzsky’s—acquired Moe’s Southwest Grill; Back Yard Burgers announced it will be acquired; and Wendy’s says it’s looking for a buyer.

“Fifty years ago, mergers were a rare thing,” Crimans says. “Everybody kind of stayed in their own cave. Nowadays, it’s just the way the world is.”

But mergers and acquisitions are not inherently a bad thing. It all depends on the particulars of each deal; matching complementary corporate cultures is by far the most important piece in the puzzle, says Marc Mushkin, vice president of franchising for Sagittarius Brands.

Mushkin was the director of franchising for Del Taco before Sagittarius, which also owns Captain D’s, finalized the Del Taco deal in March 2006.

“I can’t speak for other [brands], but in our case, joining Del Taco with Captain D’s has been positive,” Mushkin says.

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