The franchising sector can expect to see more mergers and acquisitions as smaller franchises struggle to remain profitable, an expert says, after Kleenit acquired competitor Graffiti Gone.
Jason Gehrke, director of the Franchise Advisory Centre, says when a franchisor makes the decision to enter a new geographical market, it is often more viable to undertake an acquisition.
However, he says the success of the acquisition will ultimately be determined by the level of due diligence undertaken by the franchisor looking to expand.
Get business news first
Sign up to SmartCompany’s daily newsletter
“A lot of that due diligence would need to centre around the ownership of the IP behind the segments being acquired,” Gehrke says.
“It’s generally assumed someone operating a business is going to be a more sophisticated operator than someone going in for the very first time.”
“Consequently, they can have quite accelerated timeframes. The common range is probably one to two months, although some could take a year or longer.”
Gehrke believes the franchising sector will increase in mergers and acquisitions in the future.
“There are a lot of very small franchise systems in Australia, and they will be increasingly challenged to be profitable or to be suitably profitable,” he says.
“So there is scope for mergers and acquisitions by more established systems.”
StartupSmart identifies three of the latest franchise acquisitions:
1. Kleenit and Graffiti Gone
It was reported yesterday that mobile cleaning franchise Kleenit has bought out competing company Graffiti Gone, although it’s unknown whether the Graffiti Gone franchises will be rebranded.
Kleenit, which has been established for 25 years and franchised for almost six, specialises in graffiti removal, anti-graffiti coatings, and commercial and residential high-pressure cleaning.
With 40 franchisees in its network, Kleenit currently operates in WA, Victoria and Queensland.
Graffiti Gone, which specialises in graffiti removal and line marketing services, has operations in NSW and on the Gold Coast, so the acquisition gives Kleenit instant access to these markets.
“Our strategy is to increase both the number of franchisees and our market presence. Further growth by acquisition is also an opportunity to build market share,” Kleenit says.
2. Tasty Trucks and Lunch Express
In January this year, mobile food franchise Tasty Trucks acquired Newcastle-based business Lunch Express, which operates a network of 17 lunch vans.
Victoria-based Tasty Trucks operates a fleet of more than 85 food delivery vans. According to founder Colin Lear, the Tasty Trucks vans will eventually replace the Lunch Express vans.
“In addition, we will continue to look at acquisitions in other states of Australia in a bid to realise our goal of becoming a national brand,” Lear said.
3. Collins Booksellers and Angus & Robertson
In July last year, Collins Booksellers acquired a group of Angus & Robertson franchisees that now trade under the Collins brand.
The acquisition increased Collins’ store network to more than 70 franchise stores nationwide, further entrenching the company as Australia’s largest network of franchise-owned bookshops.
Collins said it was embarking on a new growth phase, having also acquired online book retailer Seek Media.
This article first appeared on StartUpSmart.