Franchise Group owner seeks deal with creditors

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Les Dyson

1:00 am, March 25, 2008
Franchise Group owner seeks deal with creditors

By Claire Shoesmith

Les Dyson, the former chief executive of The Franchise Group who has bought the troubled company and the UK master franchise from its previous owners for an undisclosed sum, is seeking permission from creditors to implement a company voluntary arrangement (CVA) in a bid to return some money to disgruntled partners and continue to operate the business.

If successful, Dyson will run a “very different” Franchise Group from new premises in central Manchester. “If I am seen as being a different captain of the same ship, it's not going to work,” he told Crain's after signing the deal to take over the company. “The business model needs more than simple refinement. It's going to require very significant change and that's what I am intending to implement.”

Very different

The Franchise Group, formerly based in Knutsford, charged a minimum of £35,000 for “franchise partner” courses designed to equip people to recruit franchisees for client businesses. Earlier this year it admitted to having cash flow difficulties, ongoing legal disputes with some of its former franchise partners and to being investigated by the Department for Business, Enterprise and Regulatory Reform.

Dyson quit as chief executive in early February just five months after he and chairman Jeff Smith took over the company for a price that was initially reported to be £9.7m but Dyson later said was actually much less. He declined to discuss his exact plans for The Franchise Group but said he would definitely not continue to franchise the group's own partners. “I will no longer be seeking franchise fees,” he said. “I believe franchising our own business does not fit with where I want the business to be.”

Smith, together with Ric Wilson, Sion Smith and John Commander, has resigned from The Franchise Group's board with immediate effect.

In an email sent to The Franchise Group's partners and seen by Crain's, Smith said the decision to sell the company had not been an easy one, but that following the agreement, he and the three other directors would focus on expanding the group's product overseas.

According to Dyson, Smith's intention has always been to move the group into the USA, where franchising is a much more popular and lucrative business.

At the time of the initial takeover in September, Smith and Dyson announced plans to raise around £12m with a listing on the Toronto Stock Exchange.

Last week Dyson said this was definitely “off the cards” for the time being.

Rallying support

Dyson needs the support of 75 per cent of the group's creditors to proceed with the CVA.

The outcome should be known by the second week in April and he said he would be very surprised if it does not succeed. He declined to say how much they would get back.

Several of the group's former franchise partners, including 11 who spoke to Crain's, are demanding their money back because they did not earn as much as they expected.

They have all criticised the company's business model, saying that pledges in its prospectus, including that a franchise partner can expect to earn £227,000 a year with just two clients, are unrealistic.

Dyson said that as the new owner of The Franchise Group he would be taking on all the company's liabilities. “In that regard I have taken on the existing company warts and all — the good points and the bad,” he said.

If all goes to plan Dyson, who will initially own 100 per cent of the company before dividing some of the equity up amongst new board members, will move to new central Manchester offices in the next few weeks. In the future however, he said he intends to buy a building to the south of Manchester to house the business.

According to the most recent set of audited accounts filed at Companies House, The Franchise Group's turnover fell 5.4 per cent in the year to the end of April 2007, while pre-tax profit increased 11 per cent to £1m.

The balance sheet shows net cash of just £36,920 at the end of April 2007, down from £875,361 a year earlier. During the year debtors increased 86 per cent to £960,959.

COMMENTS? cshoesmith@crain.com