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1、Client Goal: Should Great Burger acquire Heavenly Donuts as part of its growth strategy? Our client is Great Burger (GB) a fast food chain that competes headto-head with McDonalds, Wendys, Burger King, KFC, etc. Description of Great Burger GB is the fourth largest fast food chain worldwide, measured
2、 by the number of stores in operation. As most of its competitors do, GB offers food and combos for the three largest meal occasions: breakfast, lunch, and dinner. Even though GB owns some of its stores, it operates under the franchising business model with 85 percent of its stores owned by franchis
3、ees (individuals own and manage stores, pay franchise fee to GB, but major business decisions (e.g., menu, look of store) controlled by GB). McKinsey study As part of its growth strategy GB has analyzed some potential acquisition targets including Heavenly Donuts (HD), a growing doughnut producer wi
4、th both a U.S. and international store presence. HD operates under the franchising business model too, though a little bit differently than GB. While GB franchises restaurants, HD franchises areas or regions in which the franchisee is required to open a certain number of stores. GBs CEO has hired Mc
5、Kinsey to advise him on whether they should acquire HD or not. QUESTION 1What areas would you want to explore to determine whether GB should acquire HD? ANSWER 1 Some possible areas are given below. Great job if you identified several of these and perhaps others. Stand alone value of HD o Growth in
6、market for doughnuts o HDs past and projected future sales growth (break down into growth in number of stores, and growth in same store sales) o Competition are there any other major national chains that are doing better than HD in terms of growth/profit. What does this imply for future growth? o Pr
7、ofitability/profit margin o Capital required to fund growth (capital investment to open new stores, working capital) Synergies/strategic fit o Brand quality similar? Would they enhance or detract from each other if marketed side by side? o How much overlap of customer base? (very little overlap migh
8、t cause concern that brands are not compatible, too much might imply little room to expand sales by cross-marketing) o Synergies (Hint: do not dive deep on this, as it will be covered later) Management team/cultural fit o Capabilities/skills of top, middle management o Cultural fit, if very differen
9、t, what percent of key management would likely be able to adjust Ability to execute merger/combine companies o GB experience with mergers in past/experience in integrating companies o Franchise structure differences. Detail “dive” into franchising structures. Would these different structures affect
10、the deal? Can we manage two different franchising structures at the same time? The team started thinking about potential synergies that could be achieved by acquiring HD. Here are some key facts on GB and HD. Exhibit 1 StoresGBHD Total5,000 1,020 o North America3,500 1000o Europe 1,000 20 o Asia 400
11、0 o Other100 0 Annual growth in stores 10% 15%Financials GBHD Total store sales$5,500m$700m Parent company revenue$1,900m$200m Key expenses (% sales)o Cost of sales51%40%o Restaurant operating costs24%26%Restaurant property & equipment costs4.6%8.5%Corporate general & administrative costs8%15% Profi
12、t as % of sales6.3%4.9% Sales/stores$1.1m$0.7m Industry average$0.9m$0.8mQUESTION 2What potential synergies can you think of between GB and HD? ANSWER 2 We are looking for a few responses similar to the ones below: Lower costs o Biggest opportunity likely in corporate selling, general, and administr
13、ative expenses (SG&A) by integrating corporate management o May be some opportunity to lower food costs with larger purchasing volume on similar food items (e.g., beverages, deep frying oil), however overlaps may be low as ingredients are very different o GB appears to have an advantage in property
14、and equipment costs which might be leveragable to HD (e.g., superior skills in lease negotiation) Increase revenues o Sell doughnuts in GB stores, or some selected GB products in HD stores o GB has much greater international presence thus likely has knowledge/skills to enable HD to expand outside of
15、 North America o GB may have superior skills in identifying attractive locations for stores as its sales per store are higher than industry average, whereas HDs is lower than industry average; might be able to leverage this when opening new HD stores to increase HD average sales per store o Expand HD faster than it could do on ownGB, as a larger company with lower debt, may have better access to capital QUESTION 3The team thinks that with synergies, it should be possible to double HDs U.S. market share in the next 5 years, and that GBs access to c
