Case Studies

Case Study 4 - Real estate sector feasibility study and business model

Industry: Hospitality

Client: Government Franchise holder of international established Hospitality franchise in the Middle East.

Objective: To sell the franchise on behalf of the Middle East franchise holder to assist with growth and expansion expected by the global franchisor.

Results:

The franchise was obtained a number of years ago by the current franchise holder in the Middle East. Due to political interference, the franchise had been put up for sale and then withdrawn a number of times, creating a high level of frustration on the part of the global franchise holder.

The client in the Middle East (local franchise holder) engaged us as independent consultants to assist with the sale of the franchise.

We assisted the client in liaising with the global franchise holder to determine what their requirements would be in terms of a suitable operator, drew up advertisements, confidentiality statements, expressions of interest, the timetable to be adhered to, which we developed, and the transparent tender process required to be followed in order to satisfy the requirements from a political point of view, from the local franchise holder position as well as the global franchisor's.

I managed the sales process but noted a number of irregularities in the process which indicated a less than transparent process was being followed due to the possibility that inside information was being traded by senior executives from our firm. This included some direct approaches for inside information made to me by senior executives, in order to favour certain of their clients and to provide an advantage over other bidders.

Other matters I identified and reported on during the sales process included strategic issues such as:

Lack of opportunity for pre qualified bidders to undertake due diligence. The Information Memorandum prepared by us was of limited value as the franchise did not have its own independent financial accounts. Allowing for independent due diligence would have been a more effective way to ensure bidders were fully aware of the strengths and weaknesses (red flags) related to the business, and hence to enable them to submit a more accurate and valid bid, resulting in better returns to the franchise holder, and a better fit with the requirements from the global franchisor.

Inappropriate bidding process which included breaches of confidentiality. Although I reported on the fact that confidential bid envelopes had been opened during the final financial bid stage, no action was taken by the firm to rectify the matter. In my opinion, the tender should have been declared null and void at this point of time.

The process was ultimately very drawn out and went well beyond the original time tables drawn up and agreed with the global franchisor and the local franchise holder. The delays were due to a number of factors, including political interference, lack of clarity and capacity from the franchise holder to stick to a clear direction and maintain clear expectations.

Lesson learnt:

Political involvement and expectations in public tenders need to be carefully managed, and a demonstrably transparent and equitable tender process must be established and carefully followed. This includes ensuring the process is safeguarded from insider trading possibilities, by high levels of security over files, information and the physical bidding process.

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