Acquisitions and Franchise Interest
It will not have escaped anyone’s attention, certainly in the last year it can only be concluded that the Dutch economy is once again on the rise. This is particularly noticeable in the retail sector: increasingly good turnovers and results are being reported everywhere. The hospitality industry is also thriving like never before.
These developments also bring another phenomenon to the attention: mergers and acquisitions. These are also taking place in the franchise sector, both at home and abroad. Often the background of mergers of organizations lies in achieving economies of scale in the field of purchasing, marketing and positioning in the market. Franchisees also benefit from this, of course, or at least that is the assumption. To this end, however, the takeover process will have to be designed in the right way and with the right arguments. Unfortunately, the latter is not always the case.
In practice, the real rationale behind a takeover of a franchise organization often turns out to be getting a grip on the market as a whole. A real problem that can then be encountered is that two franchise organizations that operate in the same market must merge with each other, each with their own franchisees. Especially in retail relationships, these are often business locations that, as competitors, are located close to each other, in each other’s market and service area. This can cause major problems in some cases, especially when the real rationale behind the acquisition is to gain a dominant position in the market as a large organization. In practice, such a ratio tends to lead to a “cold reorganization” of the number of establishments, with the less profitable ones in the lead. Such a takeover process is also often accompanied by major changes in the handling of the formula, which does not do justice to the franchise agreement and the often years of building up rights and habits of the existing franchisees.
Franchisors would therefore do well to take the interests of the franchisees into account in the event of intended takeover plans. If they fail to do so, this can lead to considerable unrest among those franchisees and, where appropriate, to attributable shortcomings in the fulfillment of the franchise agreements. Franchisees would do well, when takeovers are in the air, to carefully consider their position, both legally and economically. The franchise agreement is often formulated in such a way that the franchisees can indeed derive relevant protection from it with regard to their interests in the event of takeover scenarios. However, people are not always aware of this.
Mergers and acquisitions are often commercially attractive. Particularly in franchise relations, however, due care towards the franchisees is of the utmost importance.
mr. DL van Dam – franchise lawyer
Ludwig & Van Dam Advocaten, franchise legal advice. Do you want to respond? Go to vandam@ludwigvandam.nl
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