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The restaurant sector has changed drastically within a very short timeframe due to the COVID-19 crisis, and some of these changes are here to stay. This also means that a different approach to mergers and acquisitions is warranted within the industry. Doing what you have always done, is no longer automatically the right way to operate. In the previous article, we dived in to the 5 most common pitfalls within mergers and acquisitions In this article we will be discussing some key subjects to take into consideration. These subjects should be top of mind, not only for investors, but also for restaurant companies who are looking to enter into a sales process with one or more of their restaurants.
Prior to COVID-19, selling or acquiring often was a straightforward calculation. The restaurants turned a profit, the margins were good and revenue growth seemed to be a given. Add the growth potential to the equation and with the EBITDA multiplier derived from this, value was set. For investors, taking the leap from national to international growth was a logical consequence of growth in general. Growth, however, now has to be viewed through a different lens. The sky is no longer the limit, but instead, limits are redefined or more troublesome, unclear. Since the restaurant industry has been struck especially hard by this, we will have to take a more patient and prudent approach towards the future. Different growth scenario’s, changing consumer needs and more robust regulations regarding financial health all represent additional challenges for any restaurant (chain). Taking advances on the future will be more difficult and risky. Take this into account when planning your mergers and acquisitions. Times are different for sellers as well, and question arises: Should you even sell right now? Or, alternatively, should you use these changing times to redevelop into a concept that, in its core, fits the current mindset? You could use the financial influx of and investor to leverage the turbulence in the market such as the greater availability of prime real estate. These trying times might offer you the chance to change direction and discover new concepts and channels. We believe that with a ‘winning’ concept in hand, opportunities will come in multiple in the coming years as markets will try to find their new equilibrium.
Knowing your guests and their needs is a well-known parameter for success. Too often, however, restaurateurs work with assumptions and tend to forget that building up a regular clientele for their first few locations required time and effort. Especially from a growth perspective, having a crystal clear image of the guest is essential. YOUR guest cannot just be found anywhere. Sometimes the guest might be wiling to come to you, but in the majority of cases you need to be in the right habitat and location, were your target group is omnipresent. Therefore, a growth plan within mergers and acquisitions that is based on assumptions and gut feeling has little chance of succes. Data and retail analytics should be the foundation for any investment. What works in the capital, could fail spectacularly in other cities. A great concept in the country of origin, might miss the mark completely internationally, or even work in one country and fail in the next. Base your plans upon facts, and always keep in mind: Who are my guests, where are they and what do they want?
“A growth plan within mergers and acquisitions that is based on assumptions and gut feeling has little chance of succes. Data and retail analytics should be the foundation for any investment. What works in the capital, could fail spectacularly in other cities. “
Consumers will revalue the restaurant industry once the doors are finally allowed to open again. Meeting friends on the terrace, going for a quick bite out of home. Sidenote: we’ll never truly return to the old establishment. More than ever, consumers are choosing brands they trust and brand they identify with. In short, concepts that stand for something. Brand experience and storytelling are key. Whether you are buying or selling, chains without a heart, soul or another clear and distinctive story to tell, will be drawing the short end of the stick. Growth is a healthy ambition, but it will no longer be achieved by just opening as many physical locations as possible. The multi-channel approach is becoming a must, while in especially these new channels the competition is cutthroat and it’s nigh impossible to convey the in-restaurant experience. This means that you must have a differentiator that goes above in-restaurant experience if you want to find succes in the new world of F&B. So what is your story?
Investing and growing rapidly always seemed to be inseparable. Acquiring 40 restaurants and building 20 new ones, all in a single year, wasn’t out of the ordinary. When viewed from the traditional mergers and acquisitions paradigm, this is completely understandable. Even so, we would in most cases advise not to take this route. Copy-paste is a thing of the past. A brand should be rethought and tweaked for every new market. Ensure you invest time in building the concept, brand and experience before opening your doors. Make sure your development route is based on a flexible portfolio of formats and tailored solutions. Beware of overstepping; each opening should find traction first add up to the brand portfolio and achieve its full potential before moving forward. Trust is good but it should not result in blinded ambition fueled by new capital. It will bring you opening numbers in year 1 and 2 but if the required level of realism and modesty is not there you can hit the imaginary wall running when result are lacking.
“Copy-paste is a thing of the past. A brand should be rethought and tweaked for every new market.”
It is not always size that matters. Investing in concepts with high average restaurant sales is off course interesting but poses significant risks. Certainly once market saturation looks around the corner or (completely) new markets are explored. Dare to invest in concepts with lower average revenues but with strong business cases, with good margins for relatively low investments. From this base you can always build bigger and better, but only if the situation allows. Having a profitable solution for different levels of sales volume provided flexibility, agility and meanwhile helps to build more visibility and accessibility of the brand.
Fred van Aken – Specialist Mergers & Acquisitions
“Conceptional is here to act as a consultant within mergers and acquisitions projects, both nationally and internationally. Want to know more about our projects? Don’t hesitate to contact us, we’d love to tell you more. “