Marco's Franchising Looks At Chain Acquisitions

Thursday, 13 November 2008 08:52

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Oct. 31, 2008
 
Marco’s Franchising may look at pizza chain acquisitions for entry into new markets, CEO says

Marco’s Franchising, a Toledo, Ohio-based pizza restaurant company, may look at pizza chain acquisitions for entry into new markets, said CEO and President Jack Butorac.
 
The privately held company, which has approximate system-wide revenues of USD 100m, would analyze acquisition opportunities that would provide an entry into a new market, he said. The company expects to enter Atlanta, Georgia and selective Florida markets including: New Tampa, Tampa Westshore, Brandon, New Port Richie, Spring Hill, North Port, Greenacres, Clearwater, Plant City and Oviedo by the end of 2008. Marco’s also plans to expand into Colorado, California, Texas, and South Carolina in early 2009, according to the company.
 
Marco’s would look at the cost involved to convert the chain into Marco’s locations, and if it would be able to deploy a strong marketing campaign in the market it would enter through that acquisition, he explained. It would be “very careful and smart” about future acquisitions because it acquired a pizza chain three years ago for entry into the Indianapolis market that was challenging, he said. It acquired Pizza Magia without strong marketing and management in place which was needed in order for Marco’s to successfully integrate Pizza Magia, he explained. Consumers did not believe the product had changed and it was difficult to show the market that Marco’s was an entirely new restaurant, he said.
 
Pizza Magia had nine locations, which was a good size to acquire, he said. The company does not have strict size requirements when looking at acquisitions, said Butorac. Marco’s would explore financing options for potential acquisitions.
 
It is a difficult economy for restaurants, especially the smaller regional chains that are not able to access capital, said an industry executive. Smaller chains may decide to sell to a restaurant franchise with a national presence to avoid the possibility of closing down. Larger chains could see great buying opportunities over the next 12-18 months as valuations drop to 4-6x EBIDTA, said an industry executive.
 
Marco's uses Plave Koch and Frost Brown Todd as its legal counsels, said Butorac, and Weichman & Associates as its financial advisors, he said.
 
Marco’s is in a good position in the industry as it is profitable and cash flow positive, said Butorac. It has 12% same-store sales growth from company-managed stores and 6% same-store sales growth across the entire system, according to the company. Most of its franchisees are still able to obtain financing through SBA loans, he said.
 
The company competes with local pizzerias as well as the top three pizza chains: Dominos, Pizza Hut, and Papa Johns, he said.
 
It will continue to expand its national footprint with a goal of opening 67 new locations, he said. It has more than 170 franchises and company-owned locations in 14 states. Each location has between 20-25 employees.
 
The company was founded in 1978 by Pasquale “Pat” Giammarco. Butorac joined Marco’s as a consultant. He purchased the franchise rights before eventually buying out the founder. Butorac is now the majority owner.
 
Butorac does not plan to exit in the near-term as he is focused on growing and expanding the brand, he said.
 
The company makes authentic Italian pizza with fresh ingredients and has broadened to include hot sub sandwiches, salads and Cheezybread for carryout and delivery.