Ground Round Acquired by Franchisees

The IOC will be one of the largest cooperatively owned franchise organizations in the country. The bankruptcy process and coming together of our group has made us realize our great potential through the control of our own destiny. Our owners are experienced, proven operators, who will now be both franchisees and owners influencing the direction and operation of our brands."

Business Wire
July 28, 2004

Ground Round Acquired by Franchisees

PHILADELPHIA - (BUSINESS WIRE) - July 28, 2004—Today the Independent Owners Cooperative, LLC successfully executed their strategy to acquire a majority of the assets of The Ground Round Inc. The assets acquired include 42 trademarks registered in the United States and Canada, all of the franchise agreements and leases related to franchised locations and franchise receivables. Banknorth, N.A. provided the financing of the $4.85 million cash purchase price, with the franchisees providing equity investment in the Cooperative and additional consideration by waiving $42 million in claims against the bankrupt estate and related parties.

The Cooperative is organized by 58 franchisees abandoned by the Ground Round when it closed its doors on February 13, 2004. On February 19, 2004, the Ground Round was forced to file for bankruptcy protection in Boston. Nixon Peabody LLP, through franchise partner Craig Tractenberg and bankruptcy partner Rick Pedone, represented groups of the franchisees and formed the Cooperative initially to continue vendor relations during the bankruptcy.

Realizing the Owners' Destiny
In the Spring of 2004, the Owners met in Philadelphia during the bankruptcy proceedings to conduct diligence of potential bidders for the franchise assets. During these meetings, attended by the debtors' and creditors committee counsel, the franchisees realized that they were the natural purchasers of the assets and began shopping for bank financing and private equity to fund their acquisition. Although one of the parties interviewed in Philadelphia was the highest cash bidder at the bankruptcy auction, offering to pay $6.5 million for the franchise assets, the debtors agreed to sell to the Owners and the bankruptcy court approved the sale. Owners who purchased their franchises from the Ground Round in the past two years may still pursue their claims against $30 million of Errors and Omissions insurance coverage.

The reinvigorated system will now move forward with 72 operating restaurants in 19 states. The brands acquired include Tin Alley Pub, Gold Fork, Tap n Grill and Berkshire Grill.

According to Jack Crawford who will be President and CEO of the Cooperative, "The settlement which provided for the sale to the franchisees avoided costly litigation and will allow the investing owners to control their own system and move forward and own a share of their franchisor" In this way the franchisees who serve the customers will have direct control and ownership of the future of the brands. The IOC will be one of the largest cooperatively owned franchise organizations in the country. The bankruptcy process and coming together of our group has made us realize our great potential through the control of our own destiny. Our owners are experienced, proven operators, who will now be both franchisees and owners influencing the direction and operation of our brands."

This transaction is extraordinary in several respects. The new franchisor will be wholly owned by its existing franchise owners. The Independent Owners' Cooperative is an entity that at closing will be owned by approximately 58 of the current Ground Round franchisees who have made equity investments. An additional seven locations will be licensed by the IOC.

The new entity will be extraordinarily well poised for future growth. First, the markets previously served by the now closed corporate stores constitute a vacuum that the new company hopes to fill through expansion. According to Mike Ludwig of Hadley Massachusetts, President of the Franchise Council which led the franchisees through the bankruptcy and the Chairman of the Board of Managers of the purchaser: "This is a dream come true for all of us to run our own system and have a vested interest and mutual commitment to our future together. Going forward we expect tremendous growth. On July 12, confident that the closing would occur, our newest franchisee, Burt Benepal, opened a new location in Richmond, California and we were there to support him."

In addition, as part of the transaction, current franchisees are expected to purchase and reopen seven currently closed Ground Round restaurants. These new locations will bring the system to 72 operating franchise restaurants and have development rights to open more during the first year of operation.

Nixon Peabody LLP
Craig R. Tractenberg, 215-246-3525
Richard C. Pedone, 617-345-1305

or

Independent Owners Cooperative, LLC
Jack Crawford, 207-865-6105 x 254


Brought to you by WikidFranchise.org

Risks: Franchisees move to buy system, Cooperatively owned franchise system, Bankruptcy, When the franchisor tanks, so does the franchisee, Independent franchisee association, United States, 20040728 Ground Round

Unless otherwise stated, the content of this page is licensed under Creative Commons Attribution-ShareAlike 3.0 License