Mason Sier Turnbull and “floating” franchises

According to Mason Sier Turnbull , many franchise owners with retirement or ‘seachanges’ in mind commonly assume that they have only two options - to hand over the reins to their children or other family members, or put their enterprises up for sale.

Although listing on the Australian Stock Exchange (ASX) was never really an option except for very sizeable companies, the reactivation of the Newcastle Stock Exchange (NSX) in 2000 and the grant of a stock exchange licence to the Australia Pacific Exchange (APX) in 2004, have made it much less onerous and much less expensive for small-to-medium sized businesses to ‘go public’. In many cases, listing is now a viable and affordable option for owners who, for whatever reason, cannot pass on their businesses to family members and doubt that a well-heeled prospective buyer is just around the corner. The obvious benefit of floating a company is that it allows the enterprise to raise new capital with relative ease. This enables the shareholder(s) to sell all or some of their shares and use the proceeds to finance their retirement or alternative business/lifestyle plans.

In the last six months of last year, almost 300 companies – each seeking to raise capital of up to $5 million – sought listing on the ASX, the NSX or the APX. A recent comparison of the three exchanges demonstrates clearly the advantages that the two smaller ones have to offer. To raise $5 million on the ASX will cost considerably more than raising the same amount on the NSX or APX.

In addition to the administrative costs, fees and charges of the exchange, the business being floated can expect to engage professional advisers such as lawyers, accountants, financial consultants and others whose expertise and assistance will be required. Would-be floaters also need to factor in the cost of the management time they will devote to the float process.

Listing a company will typically take between three and 12 months on the ASX, between three and five months on the NSX and between three and nine months on the APX. Those franchisors who want to float their small-to-medium sized enterprises will gravitate to one of the smaller exchanges.

Before a company is ready to float, its structure, board composition and corporate governance procedures need to be assessed by an expert. The enterprise must convert itself into a public company, adopt an appropriate share structure, adopt an appropriate constitution which satisfies the requirements of the exchange it wants to list on, and put in place appropriate corporate governance procedures. In many cases, an expert assessment will identify shortcomings in these areas which must be rectified before the listing can go ahead.

Although these and many other listing requirements will require management time and expert assistance, particular attention needs to be taken when considering the composition of the board.

Investors and corporate regulators like to see independent non-executive directors well represented on boards, and the reputation of board members can have a profoundly positive, neutral or negative effect on the market’s willingness to invest.

One reason why many franchisors will find publicly listing an attractive exit strategy is that their businesses are typically well structured and not based around a personal identity. This makes it much easier for them to step away from their businesses confident that their departure will not have a destabilising affect on its operations.

For many franchisors with no adult children or other family members to take over the business, listing is a far more attractive option than selling to someone they’ve never met and whose skills, ethics and ambitions are unknown.

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