July 2007 Franchising World
The best way to help franchisees adapt to an acquisition is going to be through strong, effective and consistent communications.
By Jack Pearce, CFE
The effective management of an acquisition event in the franchising industry demands intense preparation and cautious execution to overcome an emotional shake-up which can accompany this kind of organizational growth. When word gets out there is an acquisition in the wind, there is a measurable impact on all parties involved, but most acutely on the attitudes, feelings and performance of the franchisees being acquired.
The fact is most of this change or shift in attitudes, although unavoidable, is almost always negative. Usually people in both companies, but particularly in the one being acquired, must go through a major adjustment process. They have to adapt to a variety of new organizational realities, not the least of which is the change in relationship between their former franchisor and their new one. All of these changes may be for the better or for the worse, but the bottom line is they must be carefully managed to achieve a positive outcome for all parties.
For these reasons, the acquiring company must first develop and execute a well-planned transition strategy; must learn to understand its new franchisees’ primary issues and concerns; must try to diagnose and deal with any resistance issues; and finally, must work hard toward building long-term relationships with its new franchisee partners. Throughout all these activities the acquiring company’s management team and franchise support staff must maintain an intense focus on highly-effective communications to make the transaction succeed.
Here are five basic steps for helping franchisees adapt when a system is being acquired:
Step One: Develop and Execute a Well Planned Strategy
A well-planned and efficiently-executed strategy for managing the acquired franchisee’s emotions, expectations and operational needs is the key to success in a franchise environment acquisition. Even with all the inherent complications of mixing human nature with the intensely stressful and difficult process of an acquisition, there are still tremendous benefits to be realized by all parties involved. These benefits are the most powerful tool in the transition process, so the communication of a clear and concise plan to deliver new services, enhanced support, additional assets and any other benefits resulting from the acquisition become most critical.
The first benefit to communicate should be at the heart of the entire acquisition process, that is the answer to the question: “Why did these companies merge or why is one acquiring the other?” The answer to this question is found among the basic reasons companies typically buy or merge. Those reasons and a brief description are as follows:
• Faster growth–accelerating the number of franchise units beyond what simple sales and development can accomplish.
• Vertical integration– stability of supplies, controlled outlet for products, eliminate middle agent and developing economies-of-scale.
• Horizontal integration–broadening the range of services that may be delivered to similar or existing customers across multiple concepts.
• Acquisition of intangibles and personnel–intangibles like technology, a marketing network, contracts or other resources–difficult to duplicate on your own. People who have knowledge, training and experience the acquirer needs.
• Changes in industries–entry into a totally new industry with strong market potential.
• Portfolio investment–diversifying the number and types of companies within an existing investor group portfolio.
• Marketability of stock–enhancing the market value of existing stock.
Considering each of these possible reasons for entering into an acquisition, the first four seem to be most typical within the franchising community. It is critical for the acquiring company to articulate and to include in its communication strategy a dialog on just how one or more of these objectives will deliver specific and tangible value to their newly-acquired franchisee constituents on an individual level.
In general, acquisition strategies and procedures may vary from being an isolated event, to being a regular part of the business. In the franchising industry, most acquisitions seem to be more isolated events seeking to accomplish very specific market strategies or synergies. Because these events are not all that common, franchise support personnel are not always fully-trained or experienced at the acquisition process.
The following suggestions may provide support personnel with the necessary orientation and tools they need to get the job done:
• All personnel involved in support of acquired franchisees should be provided training in communication tactics, effective listening, dispute resolution and other “people management” skills.
• Bulletins or announcements used to articulate the top-level strategies and benefits of the acquisition should be professionally-written and produced.
• Frequent meetings and discussions should be conducted for all personnel to be fully-informed and capable of explaining pertinent facts, benefits and strategies.
Step Two: Learn and Understand the New Franchisee’s Primary Issues and Concerns
In general, franchisees often resist change simply because one of the conventional ideas behind purchasing a franchise is for the comfort of a stable, proven and well-defined business model. Changes they fear or changes that are not of their own making ordinarily could elicit a great deal of resistance. This is a key point, because most franchisees whose parent company is being acquired will have had no part in that decision. Not only do they have no say in the matter, they often are taken by surprise.
Franchisees jolted by the news that their corporate parent is being acquired must now report to an entirely new authority. This may create a feeling of having no personal ownership of the decision and thus, their commitment to support the idea may be very weak. There is a heightened state of uncertainty that instantly pervades the entire network of franchisees and will cause rumors and negative communications to begin flowing. This could lead to using intranets, blogs and e-mails with speculation on the pros and cons of nearly every element involved in the acquisition.
The acquiring franchise organization must recognize these attitudes and behaviors and be prepared to deal with them swiftly, pro-actively and with a sound transition strategy. The newly-acquired franchisees need to feel their concerns and fears are not only being immediately addressed, but must also feel their best interests are truly at the heart of the acquisition strategy.
Here are a few suggestions for learning and understanding the issues and concerns of franchisees affected by the acquisition:
• Appoint a franchise advisory council or a small group of “top-performers” to lead a task force or committee specifically charged with examining the acquisition.
• Engage the target franchisees in broad discussions about acquisition strategies designed to achieve specific objectives.
• Provide case study information to franchisees illustrating the benefits and successes of other organizations attempting similar strategies.
• As confidentiality restrictions will allow, inform franchisees of the strengths and benefits of both the acquisition strategy, as well as the resulting company structure.
• Most importantly, listen carefully to the feedback and comments coming from the franchisees in all their discussions, committees, e-mails and other forums.
Step Three: Overcome Deliberate and Unconscious Resistance
As hard as the acquiring franchisor might try to provide renewed levels of communication, participation and assurance, the acquisition and the potential changes it brings are still going to be resisted. Some franchisees will be very outspoken and overt in expressing their dismay. They may choose to be very open in expressing their shock, anger, and frustration, and in many cases will not be able to hide their feelings even if they tried.
In the case of overt resistance, it is very important to calmly and resolutely address franchisees’ concerns without attempting to refute, degrade, diminish or belittle them. Explanations or superfluous reasoning will not normally win over emotional comments. In the absence of any current or immediate results, there truly are no right or wrong answers to many of these resistance questions and concerns.
On the other hand, the unconscious resistance may be much more subtle, but no less damaging and often even more widespread. It is more passive in nature and is manifested most visibly in operating performance. Some may even insist they are cooperative and support the newly-formed organization, but the facts could not bear that out. The unconscious resistance will manifest itself in lowered morale, lower productivity, loss of competitive advantage, disappointing profits and most critical for the acquiring company, a deterioration in royalties.
Even when franchisees in the acquired organization make a concerted effort to adjust and embrace the merger, it can still result in decreasing performance. Much franchisee behavior that is well-intentioned and even self-sacrificing may run counter to what is best for the organization as a whole. For example, those “top-performer” franchisees who were asked to participate in strategic discussions may now be bogged down in endless e-mails and inquiries from other franchisees looking for advice or direction.
Here are a few suggestions for the support team to overcome resistance issues:
• Monitor all forms of company communications and ensure that franchisees are not being unduly burdened with the task of implementing, explaining or promoting the benefits of the acquisition.
• Openly address all negative issues and concerns the franchisees may express–be willing to “live with our differences.”
• Actively listen to franchisee anger or venting concerns, but do not attempt to argue over right and wrong answers.
• Ensure that all new assets, products, services or any other benefits of the acquisition are swiftly and efficiently distributed to all franchisees.
• Budget sufficient labor and working capital to ensure there is an increase in the availability of support services just before, during and after the acquisition.
Step Four: Build Long-Term Relationships
As support personnel begin to consider the communication challenges they must face, they are confronted by the fact the most important part of the acquisition occurs after it is concluded, answering the question, “Does it work for both sides?” For this reason, the parties to the transaction should avoid thinking of the event in terms of coming to a close, but instead think of it as the beginning of a long-term relationship.
The various aspects of the acquisition agreement should be geared toward the ongoing development of the long-term relationship. For example, employment agreements with support personnel should not be simply geared toward immediate negotiating positions, but instead should be designed to encourage and motivate the employee to participate and achieve higher levels of performance anticipated through the combination of both company’s assets.
Here are a few suggestions for building long-term relationships:
• Implement support staff incentives specifically designed around performance improvements in newly- acquired franchised locations.
• Offer performance incentives to the newly-acquired franchisees including both short-term benefits (fee rebates), as well as long-term goals (reduced fee rates).
• Immediately integrate newly-acquired franchisees into various committee or council structures, such as the franchise advisory council and advertising fund councils.
Step Five: Maintain an Intense Focus on Effective Communications
As is common with all situations involving franchise relations, effective communication is the key element for success. Given the tumultuous nature of an acquisition event, effective communications are going to be at the heart of both the franchisees’ and the franchisor’s ability to adapt and make the necessary adjustments for a smooth and successful transition.
Although there is inherently an adversarial relationship involved in the acquisition process, all parties must attempt to minimize this factor in order to overcome the unique issue of having a franchisee constituency involved in the process. There is an intense need for cooperation between both companies with an interest toward achieving a long-term outcome of mutual benefits. Because of the extensive due-diligence process, the length of time involved and the need for both parties to fully understand every element of each other’s business, there is a tremendous premium placed on open, honest and clear communications.
From the franchisee’s perspective it will be critical to communicate how the combination of company assets creates greater value for their franchise investment over the long term. There may also be very immediate needs to address in the short term, such as offering new support services, marketing programs, collateral materials or other synergies not previously available to the franchisee from his former parent company or support team. The communication strategy must focus on quickly and efficiently getting this information into the franchisee’s hands and simultaneously providing access to the new benefits.
Cooperation from all parties is the cornerstone in achieving a smooth transition and successful initial operation of the acquired business, but effective communications will be its ultimate foundation. In the end, the best way to help franchisees adapt to an acquisition is going to be through strong, effective and consistent communications.
Jack Pearce, CFE, was formerly a chief operations and financial officer of a 200-unit national franchise organization, serves on two national IFA committees, Franchise Relations and Information Technology. He can be reached at jpearce54@comcast.net.
The best way to help franchisees adapt to an acquisition is going to be through strong, effective and consistent communications.
By Jack Pearce, CFE
The effective management of an acquisition event in the franchising industry demands intense preparation and cautious execution to overcome an emotional shake-up which can accompany this kind of organizational growth. When word gets out there is an acquisition in the wind, there is a measurable impact on all parties involved, but most acutely on the attitudes, feelings and performance of the franchisees being acquired.
The fact is most of this change or shift in attitudes, although unavoidable, is almost always negative. Usually people in both companies, but particularly in the one being acquired, must go through a major adjustment process. They have to adapt to a variety of new organizational realities, not the least of which is the change in relationship between their former franchisor and their new one. All of these changes may be for the better or for the worse, but the bottom line is they must be carefully managed to achieve a positive outcome for all parties.
For these reasons, the acquiring company must first develop and execute a well-planned transition strategy; must learn to understand its new franchisees’ primary issues and concerns; must try to diagnose and deal with any resistance issues; and finally, must work hard toward building long-term relationships with its new franchisee partners. Throughout all these activities the acquiring company’s management team and franchise support staff must maintain an intense focus on highly-effective communications to make the transaction succeed.
Here are five basic steps for helping franchisees adapt when a system is being acquired:
Step One: Develop and Execute a Well Planned Strategy
A well-planned and efficiently-executed strategy for managing the acquired franchisee’s emotions, expectations and operational needs is the key to success in a franchise environment acquisition. Even with all the inherent complications of mixing human nature with the intensely stressful and difficult process of an acquisition, there are still tremendous benefits to be realized by all parties involved. These benefits are the most powerful tool in the transition process, so the communication of a clear and concise plan to deliver new services, enhanced support, additional assets and any other benefits resulting from the acquisition become most critical.
The first benefit to communicate should be at the heart of the entire acquisition process, that is the answer to the question: “Why did these companies merge or why is one acquiring the other?” The answer to this question is found among the basic reasons companies typically buy or merge. Those reasons and a brief description are as follows:
• Faster growth–accelerating the number of franchise units beyond what simple sales and development can accomplish.
• Vertical integration– stability of supplies, controlled outlet for products, eliminate middle agent and developing economies-of-scale.
• Horizontal integration–broadening the range of services that may be delivered to similar or existing customers across multiple concepts.
• Acquisition of intangibles and personnel–intangibles like technology, a marketing network, contracts or other resources–difficult to duplicate on your own. People who have knowledge, training and experience the acquirer needs.
• Changes in industries–entry into a totally new industry with strong market potential.
• Portfolio investment–diversifying the number and types of companies within an existing investor group portfolio.
• Marketability of stock–enhancing the market value of existing stock.
Considering each of these possible reasons for entering into an acquisition, the first four seem to be most typical within the franchising community. It is critical for the acquiring company to articulate and to include in its communication strategy a dialog on just how one or more of these objectives will deliver specific and tangible value to their newly-acquired franchisee constituents on an individual level.
In general, acquisition strategies and procedures may vary from being an isolated event, to being a regular part of the business. In the franchising industry, most acquisitions seem to be more isolated events seeking to accomplish very specific market strategies or synergies. Because these events are not all that common, franchise support personnel are not always fully-trained or experienced at the acquisition process.
The following suggestions may provide support personnel with the necessary orientation and tools they need to get the job done:
• All personnel involved in support of acquired franchisees should be provided training in communication tactics, effective listening, dispute resolution and other “people management” skills.
• Bulletins or announcements used to articulate the top-level strategies and benefits of the acquisition should be professionally-written and produced.
• Frequent meetings and discussions should be conducted for all personnel to be fully-informed and capable of explaining pertinent facts, benefits and strategies.
Step Two: Learn and Understand the New Franchisee’s Primary Issues and Concerns
In general, franchisees often resist change simply because one of the conventional ideas behind purchasing a franchise is for the comfort of a stable, proven and well-defined business model. Changes they fear or changes that are not of their own making ordinarily could elicit a great deal of resistance. This is a key point, because most franchisees whose parent company is being acquired will have had no part in that decision. Not only do they have no say in the matter, they often are taken by surprise.
Franchisees jolted by the news that their corporate parent is being acquired must now report to an entirely new authority. This may create a feeling of having no personal ownership of the decision and thus, their commitment to support the idea may be very weak. There is a heightened state of uncertainty that instantly pervades the entire network of franchisees and will cause rumors and negative communications to begin flowing. This could lead to using intranets, blogs and e-mails with speculation on the pros and cons of nearly every element involved in the acquisition.
The acquiring franchise organization must recognize these attitudes and behaviors and be prepared to deal with them swiftly, pro-actively and with a sound transition strategy. The newly-acquired franchisees need to feel their concerns and fears are not only being immediately addressed, but must also feel their best interests are truly at the heart of the acquisition strategy.
Here are a few suggestions for learning and understanding the issues and concerns of franchisees affected by the acquisition:
• Appoint a franchise advisory council or a small group of “top-performers” to lead a task force or committee specifically charged with examining the acquisition.
• Engage the target franchisees in broad discussions about acquisition strategies designed to achieve specific objectives.
• Provide case study information to franchisees illustrating the benefits and successes of other organizations attempting similar strategies.
• As confidentiality restrictions will allow, inform franchisees of the strengths and benefits of both the acquisition strategy, as well as the resulting company structure.
• Most importantly, listen carefully to the feedback and comments coming from the franchisees in all their discussions, committees, e-mails and other forums.
Step Three: Overcome Deliberate and Unconscious Resistance
As hard as the acquiring franchisor might try to provide renewed levels of communication, participation and assurance, the acquisition and the potential changes it brings are still going to be resisted. Some franchisees will be very outspoken and overt in expressing their dismay. They may choose to be very open in expressing their shock, anger, and frustration, and in many cases will not be able to hide their feelings even if they tried.
In the case of overt resistance, it is very important to calmly and resolutely address franchisees’ concerns without attempting to refute, degrade, diminish or belittle them. Explanations or superfluous reasoning will not normally win over emotional comments. In the absence of any current or immediate results, there truly are no right or wrong answers to many of these resistance questions and concerns.
On the other hand, the unconscious resistance may be much more subtle, but no less damaging and often even more widespread. It is more passive in nature and is manifested most visibly in operating performance. Some may even insist they are cooperative and support the newly-formed organization, but the facts could not bear that out. The unconscious resistance will manifest itself in lowered morale, lower productivity, loss of competitive advantage, disappointing profits and most critical for the acquiring company, a deterioration in royalties.
Even when franchisees in the acquired organization make a concerted effort to adjust and embrace the merger, it can still result in decreasing performance. Much franchisee behavior that is well-intentioned and even self-sacrificing may run counter to what is best for the organization as a whole. For example, those “top-performer” franchisees who were asked to participate in strategic discussions may now be bogged down in endless e-mails and inquiries from other franchisees looking for advice or direction.
Here are a few suggestions for the support team to overcome resistance issues:
• Monitor all forms of company communications and ensure that franchisees are not being unduly burdened with the task of implementing, explaining or promoting the benefits of the acquisition.
• Openly address all negative issues and concerns the franchisees may express–be willing to “live with our differences.”
• Actively listen to franchisee anger or venting concerns, but do not attempt to argue over right and wrong answers.
• Ensure that all new assets, products, services or any other benefits of the acquisition are swiftly and efficiently distributed to all franchisees.
• Budget sufficient labor and working capital to ensure there is an increase in the availability of support services just before, during and after the acquisition.
Step Four: Build Long-Term Relationships
As support personnel begin to consider the communication challenges they must face, they are confronted by the fact the most important part of the acquisition occurs after it is concluded, answering the question, “Does it work for both sides?” For this reason, the parties to the transaction should avoid thinking of the event in terms of coming to a close, but instead think of it as the beginning of a long-term relationship.
The various aspects of the acquisition agreement should be geared toward the ongoing development of the long-term relationship. For example, employment agreements with support personnel should not be simply geared toward immediate negotiating positions, but instead should be designed to encourage and motivate the employee to participate and achieve higher levels of performance anticipated through the combination of both company’s assets.
Here are a few suggestions for building long-term relationships:
• Implement support staff incentives specifically designed around performance improvements in newly- acquired franchised locations.
• Offer performance incentives to the newly-acquired franchisees including both short-term benefits (fee rebates), as well as long-term goals (reduced fee rates).
• Immediately integrate newly-acquired franchisees into various committee or council structures, such as the franchise advisory council and advertising fund councils.
Step Five: Maintain an Intense Focus on Effective Communications
As is common with all situations involving franchise relations, effective communication is the key element for success. Given the tumultuous nature of an acquisition event, effective communications are going to be at the heart of both the franchisees’ and the franchisor’s ability to adapt and make the necessary adjustments for a smooth and successful transition.
Although there is inherently an adversarial relationship involved in the acquisition process, all parties must attempt to minimize this factor in order to overcome the unique issue of having a franchisee constituency involved in the process. There is an intense need for cooperation between both companies with an interest toward achieving a long-term outcome of mutual benefits. Because of the extensive due-diligence process, the length of time involved and the need for both parties to fully understand every element of each other’s business, there is a tremendous premium placed on open, honest and clear communications.
From the franchisee’s perspective it will be critical to communicate how the combination of company assets creates greater value for their franchise investment over the long term. There may also be very immediate needs to address in the short term, such as offering new support services, marketing programs, collateral materials or other synergies not previously available to the franchisee from his former parent company or support team. The communication strategy must focus on quickly and efficiently getting this information into the franchisee’s hands and simultaneously providing access to the new benefits.
Cooperation from all parties is the cornerstone in achieving a smooth transition and successful initial operation of the acquired business, but effective communications will be its ultimate foundation. In the end, the best way to help franchisees adapt to an acquisition is going to be through strong, effective and consistent communications.
Jack Pearce, CFE, was formerly a chief operations and financial officer of a 200-unit national franchise organization, serves on two national IFA committees, Franchise Relations and Information Technology. He can be reached at jpearce54@comcast.net.
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