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Six Things Investors Look Out For Before Acquiring An Enterprise Making an acquisition can be an attractive proposition for many reasons, whether it is driven by the synergies between two companies, or simply to eliminate the competition.

By Nadim Majdalani

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SushiArt's location in Abu Dhabi

Making an acquisition can be an attractive proposition for many reasons, whether it is driven by the synergies between two companies, or simply to eliminate the competition. As an investor, there are steps you must take to analyze the impact of an acquisition on your existing business. For our company eathos' recent acquisition of SushiArt, our team followed six steps that ultimately led to the decision to welcome the brand into our existing portfolio of franchises.

1. Does the brand fit?

Firstly, you should analyze how the brand fits with your high level strategic objectives and the other brands that make up your existing portfolio. Our company, eathos, focuses on fast casual and casual dining restaurants as they have the highest scalability potential, so the first and most important thing is to ensure that the brand you are looking at falls within these segments, and does not directly compete with any of your existing brands, for diversification purposes. Additionally, we had specifically targeted the sushi segment, given the increasing consumer focus on the freshness and healthiness of their meals.

2. Identify a motivated and reasonable partner

Establish early on that you are dealing with a rational seller, experienced or well advised, and with reasonable valuation expectations. It can be a fantastic product or service, but if you can't get to terms with the existing owners of the business, there is no point in pursuing the opportunity any further. When buying a franchise there are additional moving parts that can add a layer of complication. The transaction usually involves three different parties: the buyers, the sellers and the owners of the franchise, who need to vet their new franchisee. In this situation, making sure all parties are aligned early on is key.

For our acquisition of SushiArt, after reviewing high-level financial information, the first thing we did before diving into a detailed due diligence exercise, was to agree on the purchase price with the sellers of the franchise. We then asked to be introduced to the franchisor to confirm they were fine with eathos becoming their franchisee in the Middle East, and renegotiate some fundamental terms of the franchise arrangement.

SushiArt's location in DIFC
Source: SushiArt
Related: Four Things To Consider Before Selling Your Company

3. Showcase proof of concept

This sounds obvious, but it is essential and has to be analyzed the right way. You must look deeply into the brand, and ascertain proof of concept. From a financial perspective, this is usually done by analyzing the revenues, profitability and return on investment across multiple locations, and the underlying growth of the business. SushiArt opened four locations ahead of eathos acquiring it, all of them being profitable, with the more mature location still exhibiting double-digit growth. This is quite impressive in the current trading environment, and shows that the concept can be successful across different types of locations, whether they are office clusters or tourist destinations, in both Dubai and Abu Dhabi.

It is also important to take the vantage point of the consumer and hear what they have to say about the brand and their competitors. Not so long ago, this used to be quite a lengthy and expensive task that involved running surveys or focus groups, but consumer ratings have now become much more transparent, thanks to websites like Zomato and TripAdvisor, which allow us to easily assess the quality of the product and customer service in comparison to direct competitors.

4. Scaling the business

If the concept has been proven successful, we then need to look at its potential to scale, and whether there is room for expansion, in its home market or regionally. Taking F&B as an example, fine dining tends to be less scalable, as so much of the concept and the attraction is related to the uniqueness of the venue or an individual chef, whereas casual dining outlets can expand much faster.

We believe that right now, the biggest opportunity for growth in the GCC for the F&B sector is the Saudi Arabia market, due to its size and relatively less competitive landscape as compared to the UAE. SushiArt, thanks to its flexible multi-format concept and the combination of a strong dine-in business and a state-of-the-art home delivery operation, is very well positioned to reach significant regional scale in the coming years, and this was certainly a decisive factor in our investment decision.

SushiArt's location in Abu Dhabi
Source: SushiArt
Related: Determining The Value Of Your SME: Leap Ventures' Henri Asseily Explains How

5. Readiness to scale

It is not sufficient to have a scalable concept- you also need to make sure that the company is adequately equipped to seize the growth opportunities. Do you have the right standard operating procedures, manuals and recipes in place to profitably grow the business? Having all of these in place frees you from having to rely on a few key people, and one of the advantages of the franchise model is that the ground work has already been laid out, and these types of processes are already in place. From there, you can slightly adjust for local market specificities if needed, and proceed smoothly.

6. Look at the human capital

We have built eathos with the objective of hiring top-level professionals, and we have the same objective with the brands we acquire. It is important to look at the people you're hiring, and if they fit the existing work culture. Are they retainable, and can you offer them opportunities to grow within your organization? At SushiArt, we have found a young and motivated team, and we were able to retain all staff members.

Finally, just a few words directed to professionals who happen to be on the other side of the table. If you are a brand owner looking to raise capital to grow your concept, you should be very diligent in selecting the right partner, keeping in mind the longevity of the relationship. It is important not to just focus on who is going to pay the most upfront, but rather on who is going to be there and supportive in the long term, who will understand the challenges you are facing on a daily basis, and who will contribute to the growth of the business. Although difficult, relinquishing some control to a professional value-add partner may be the best decision for longterm value creation.

Related: Selling Your Business: Developing An Exit Strategy For Your SME

Nadim Majdalani

Chief Financial Officer and Business Development Director, Eathos

Nadim Majdalani is the Chief Financial Officer and Business Development Director at eathos. Nadim is one of the founding members of eathos. He previously spent nine years with the global firm Quilvest Private Equity, with a concentration on deal sourcing, execution and post-acquisition support in the F&B/restaurant sector. During his tenure, Nadim worked closely with a number of portfolio companies including YO! Sushi, supporting them in a range of strategic, financial and operational activities. Nadim holds a MBA from Harvard Business School, MS from Stanford University and BE Hons. from the American University of Beirut.
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