We explain why we think it's crucial for business owners to have an exit strategy in place, even if you don't expect to ever sell your business.
So, you've either been thinking about opening your first restaurant, have a small group of restaurants or own a large chain. In any of these cases an exit plan should always be on the cards.
The reason for this is that the difference between running one venue to running 100 requires vastly different skill sets and desires. Take Alan Yau as an example. He was brilliant as the founder of Wagamama, building it into a fantastic recognised brand but the business required new hands to continue the growth of the brand, hence Wagamama’s is now owned by private equity. A similar situation occurred for Carluccio's, with Antonio Carluccio selling the brand to international buyers. The flair and entrepreneurial spirit which goes into creating and developing an initial concept is often not required when it comes to the fundamentals of a sophisticated corporate role out.
The first question that any operator should ask themselves is: what do I really want? Do I want to sell my business at some point in the future? If so, when, and for how much?
Secondly: do I actually want to invite investors such as private equity into my business at some point? If so, what is needed in order to attract such investors?
Finally, is there family within the business that could take over and is this a realistic proposition?
The issues encountered by operators who don’t plan for an exit, rather simply wishing to run the business day to day and living off the business will typically only be willing to sell the business due to receiving a really attractive offer. On the other hand, there are situations that arise where they will wish to sell but lack the right information to give to a buyer which often leads to them having to sell far lower than their initial expectations.
The fact is that the majority of operators want to be able to grow their business, roll out a concept and sell it for as much money as possible. The key term here is ‘roll out’, which is intrinsically linked to a business exit. What is clear for all acquisitions of large leisure groups is that buyers will pay a higher multiple of profit earnings if a proven concept and formula has been established. This means that the concept should be consistent over a number of units in the following areas: turnover and profit, capital expenditure per unit, labour, food and drink costs and rent. If an operator can demonstrate similarities in these indicators over a larger scale of different sites as well as target areas for expansion, then multiples on earnings can be much higher.
Probably one of the most successful groups in doing exactly this has been Richard Caring and his investments of Strada, Cote and Bills, all of which have been bought and rolled out to a certain level and then sold to private equity groups on the basis that they have substantial roll out potential.
The key to success here is always to leave some meat on the bone for expansion into areas by proving that the concept works. In terms of the multiple of profit this can vary from as low as two to three times on individual sites to as high as twelve times the multiple for established models with potential for on-going rollout. This ‘cookie-cutter’ model is becoming more and more prevalent for good reason.
So our advice would be that if you are an operator, look at yourself in the mirror and decide who you want to be. Do you want to be somebody that is going to sell to a corporate, are you going to become a corporate or do you want to be in this game just because you love it? Decide what you are going to be and take some advice on how you are going to get there.