Eagle Boys and Pizza Hut is currently in the process of negotiation for a possible merger to form the second largest pizza chain in Australia. The two pizza chains are currently holding about 35% of takeaway pizza market in Australia with a total of 384 outlets all over the country. While Domino, the largest pizza chain in Australia has more than 600 outlets all over Australia and New Zealand.
A report from Fairfax stated that Allegro Funds, a Sydney based private equity firm is currently doing serious talks in its effort to buy the Eagle Boys from SV Partners as well as to buy the Australian Pizza Hut from Yum! Brands. Allegro Funds is a private equity firm that owns bus maker Custom, Great Southern Rail and Carpet Court.
Over the last few months there are two private equity firms that seriously show interest in the two pizza chains, but Allegro Funds seems to be the one that’s getting closer to secure the deal. The indication is getting stronger following the appointment with Eagle Boys’ administrators David Stimpson and Terrence Rose last July.
Since the meeting, 13 Eagle Boys have closed and it was reported that the head office has $30 million debt to creditors. According to Fairfax report, it’s still uncertain whether Allegro Funds is planning to continue operating these brands separately using their original names or it will change the brand names of Eagle Boys outlets to Pizza Hut.
Merger and what it really means to franchisees
According to the director of the Franchise Advisory Centre, Jason Gehrke, Just because a franchise network is sold, it doesn’t mean that the buyer will automatically negotiate new franchise agreements with the current franchisees. Usually, franchise agreements include a clause that enables the franchisor to apply the existing agreement without recourse.
This is actually a win-win for both the franchisor and franchisees, because it allows the franchisor to easily sell the business without the need to have the franchisees’ approval. However, after the sale, the buyer can either apply the existing agreements or subsequently try to alter the agreements or even change the agreements completely.
In a situation where two franchise networks merge or a franchised business is sold to another similar business, usually there will be an overlap in the outlets’ locations. In case of an overlap, some outlets may be closed or released from their agreement to be able to trade independently.
Branding is also an important subject in this matter. One of the most often question after the merger is whether the buyer should continue using the original brand or to absorb it into the other, bigger brand. In case they choose to absorb it, the new outlets would obviously need to be rebranded in time. The following questions is usually about who’s going to pay for the rebranding process.
If the rebranding is paid by the franchisor, usually the whole process will be quicker and done comprehensively. However if it’s paid by the franchisees, usually it will take time and not to mention an internal resistance that might just happen.