Overnight Merger Model v
Franchise Prototype

10 reasons why FEISAL’s ‘Overnight Merger Model’ is more effective than the traditional Franchise Prototype Model

OMM V Franchise Prototype

  1. Overnight Merger Model (OMM) purchases established businesses with high profits. Franchisees are often start ups with no profit and can even begin their operation with debt.
  2. OMM has skilled and qualified operators. By example, Xeinadin is a Chartered Accountancy business with hundreds of qualified personnel. It is regulated by ICAEW. Alitam is a pharmacy business. Alitam is also highly regulated with the business employing a significant number of superintendents. Franchisee models focus on selling a box of tricks and then training the owners, etc. In comparison, franchisees employ less qualified personnel. Whilst the industry may be regulated, the personnel purchasing the franchisee may not be.
  3. OMM is extremely rare in that each model is designed to have no debt and no loan either on consolidation or shortly thereafter. Franchisees are likely to have debt from day 1.
  4. OMM equity directors operate in the mainstream business. They are key shareholders of the main company. Franchisees tend to run differently. A franchise normally has a head office with its mainstream company and accounting separated from its franchisees. This implies that the OMM has more skilled and qualified personnel at equity director level, as each subsidiary owner is operating for the mainstream business.
  5. It’s more cost effective to begin an OMM. Xeinadin Group and Alitam Group were both initially built with just 3 staff needed. A franchise operation is likely to need a head office earlier on, carrying a significant higher level of cost.
  6. The OMM has a solvency plan funded by entrants using their existing profits from their businesses. Franchisors charge franchisees who have yet to make profit. OMM avoids a debt ridden model and focuses on using existing profit to fund ongoing solvency.
  7. An OMM lists/floats all subsidiaries as franchise models tend to float just the head office (with royalties and licenses heading centrally from their franchisees). All equity owners of their subsidiaries benefit from a listing in the OMM as franchisees are unlikely to.
  8. In franchising most start ups are in debt and run a debt model as they strive to make profit over time. In the OMM equity directors are rewarded by their ongoing profitability and by the incremental value should the company undertake a stock market listing. Their existing levels of profits are used as a gage of value. OMM is built to create short term wealth for participants but yet allow entrants to continue there ongoing trade. Franchising creates value for main owners (franchisee) in brand recognition and systematisation. Franchisee focuses on sales rather than using immediate profits to create value.
  9. On entering consolidation – OMM plans to double/treble the value of all subsidiaries businesses. These values are subject to capital gains tax (currently a very low rate of tax in the UK). A franchisee entering a franchise model starts to plan for their value which could take many years to build.
  10. OMM builds a community spirited team of equity directors. They all operate for the mainstream business. Franchisees in a franchise prototype are unlikely to know each other. They are typically being guided by their head office rather than acting as a community.

It’s more cost effective to begin an OMM. Xeinadin Group and Alitam Group were both initially built with just 3 staff needed. A franchise operation is likely to need a head office earlier on, carrying a significant higher level of cost.

Why does the OMM win?

OMM has more qualified and skilled workers. There’s more equity directors in the mainstream business. The equity directors can pool their knowledge and share this amongst each other as they have a vested interest to do so. They work hand in hand.

They drive one another on a daily basis and there is mutual respect amongst the community as all their businesses are profitable. All subsidiary owners enter the OMM with existing value. At worst each subsidiary can pay off any debts with any listing proceeds. Owners are planned to be cash rich and millionaires from listing but incentivised to continue their ongoing work.

The OMM is a team orientated environment across the group. The OMM is cost effective to get up and running and mitigates much risk in its setup. The OMM is likely to succeed as the model purchases profits only.

The OMM aims to double/treble values on listing. Founders and owners of the OMM only benefit from their hard work on a successful float. This keeps entrants profitable. There’s more equity beneficiaries within the OMM model. A high proportion of main equity directors become millionaires. The OMM reduces risk on day 1 by acquiring profitable established businesses only – no start-ups. Finally and very importantly, the OMM can ‘arbitrage’ on stock markets by buying profits at lower value once listed, with an intent to drive share value. Franchisees don’t tend to buy businesses in the same way but their model tends to focus on driving their sales by selling ‘systems in boxes and manuals’.

With the OMM more skilled equity directors join the movement. With the OMM you can add a franchising arm to the model but you can’t add an OMM to a franchise prototype. The OMM therefore has more agility and options for ongoing growth.

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