Look for external growth
Gerhardt says you must look both inside and outside your organization to plan a growth strategy.
“What we do is we look at those centers that are growing, then figure out what they’re doing to grow,” he says. “Then we match that to
the talk we’re hearing in the industry about what is working.
“One example of that is one of our franchise owners who decided to
diversify into the sign business. The technology between the sign business and the print business is merging. So this franchisee in one of our
performance groups made it known to us that he was very successful
at that. That led to our acquisition of Signs Now, which was a big
growth step for us.”
When vetting a potential franchise acquisition candidate, connection to the market is among the criteria Allegra’s leaders use to
assess the company. An acquisition should not only mesh well with
your business model, it should help further your long-term vision.
“We’re looking for printers that have a similar profile to our existing
franchisees,” Gerhardt says. “We know that market segment and can
support it well.”
He says staying focused and knowing what you want out of a
growth opportunity is essential to success. It’s easy to fall in love with
an acquisition or any chance for growth. But it has to be the right
opportunity. Developing that mindset takes discipline.
“It’s easy to get acquisition fever,” he says. “It’s like, ‘I want this car. I
have to have this car.’ We’ve all been there, right?
“But when you make these acquisition decisions, you’re almost
in a sense betting the farm. You’re usually taking on substantial
debt. It was a several-million-dollar deal for us to take on Signs
Now. So we had to acknowledge that we had to be very careful
about this, that we don’t acquire something that is not right, so we
have to do our due diligence right. You have to look inside it, and
if you find something that isn’t right, don’t go there.”
To profile independent printers looking for a buyer, Allegra gets
basic information in writing. Gerhardt and his staff look at three primary criteria: product sales, equipment and technology. Those three
areas are key indicators in determining whether the acquisition candidate is operating in the same markets as Allegra.
“We look at that profile to make sure they have the right technology
fit and are playing in the right segment of the market,” he says. “After
that, we require them to provide their financial statements to see if
they’re profitable. If they’re not, they aren’t going to be much of a fit
for us.”
If a company’s vital statistics look favorable and Allegra’s leaders
feel like it’s the right opportunity for the company, they’ll get the independent printer’s owner involved in aiding the transition to an Allegra
franchisee. They do so by requiring that the selling owner remain
financially vested in the company.
“We want the selling owner to stay on for 30, 60, 90 days or even up
to six months to help in the transition,” Gerhardt says. “We also ask
that the selling owner carry back part of the financing of the business.
We want them to have some skin in the game, so to speak, so they’ll
be less prone to misrepresent what they’re selling.”
On the franchisee side, new owners are educated in Allegra’s
business through an orientation program. It might be months
before Allegra finds a franchise to sell to the new franchisee, but
Gerhardt wants new franchisees to have a thorough background
in how Allegra does business before any deals are signed.
Once a franchise is found, Allegra puts the franchisee slated to make
the purchase through an additional two-and-a-half-week training class
that gives them a soup-to-nuts overview on how to run an Allegra franchise.
New franchisees are also assigned a support manager who helps the
franchisee form a business plan and aids in every phase of the transition. Allegra has two staff members who concentrate solely on helping new franchises ramp onto the Allegra platform.
As part of the transition support, Allegra counsels new franchisees
on dealing with employee matters. Acquisitions can lead to a period of uncertainty for the employees of the acquired company. Gerhardt
says most employees want to know about their job security and the
future of the company — in that order.
“Employees are vitally important in the transition process,” he
says. “You have to keep those employees satisfied and in place. So
we give our buyers information on how to do that with human
resources tools. In some cases, we might require an employment
agreement with some of the key employees.
“The employment agreement does two things: It gives the employee
some security that we want them to stay on board. We would also
include a noncompete clause in it. Then, if they leave the company,
they can’t take any accounts with them. So it’s basically done to
ensure that transition. We have some comfort, and they have some
comfort.”
The process of acquiring 40 printer franchises in the past four-plus years has taught Gerhardt that slow and steady is the way to
go in any type of growth.
“The key with anything like this is you have to start small, do a
bit of testing and ramp up,” he says. “The first year we had this
matchmaker program we did three of them and learned from the
process. The second year, we did six or eight. Last year, we did 20.
So we’re scaling up as we go, and we’ve refined our processes a
great deal in that time period.
“These are very complex deals to work. It’s very different than
starting a ground-zero franchise, where you do the site selection,
send the equipment in, train the people and open it up. When
you’re making a match and doing a deal like this, it’s a totally different animal.”
HOW TO REACH: Allegra Network LLC, (248) 596-8600 or www.allegranetwork.com
