Mad Mex on the market as franchise seeks expansion

Fast-food chain Mad Mex Fresh Mexican Grill has been put on the market through Allunga Advisory as businesses operating under the franchise model fight to gain more scale.

Established by former Wall Street banker Clovis Young, Mad Mex started in Sydney’s Darlinghurst in 2007 — a year after rival Guzman y Gomez came on the scene. It also operates under a franchise model.

Mad Mex had 60 locations throughout Australia and the North Island of New Zealand as of November last year.

Guzman y Gomez — founded by Steven Marks, who also previously worked on Wall Street — recently managed to land TDM Growth Partners as a stakeholder, which will help with plans to expand further in Australia and enter the US.

However, until TDM came along, all had not been smooth sailing for Guzman y Gomez, with its accounts for the 2017 year showing it made a $1.6 million loss against $22.3m of sales and breached its debt covenants under its Bank of Queensland loan term, with total debts worth $1.9m, including $575,790 of bank debts.

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Market analysts say that the challenge for groups such as Mad Mex and Guzman y Gomez is that they often struggle to secure the capital to expand beyond about 60 stores.

In a 2012 interview with The Australian, Mr Young said that Mad Mex had annual turnover of $22m, adding that a franchised restaurant chain needed at least 20 stores for a venture to be successful.

Just months ago, Sumo Salad was put on the market and later went into voluntary administration after failing to fend off hefty rental demands from its landlords. It recently came out of voluntary administration and is back in the hands of founder Luke Baylis.

Meanwhile, at least one private equity firm is believed to be circling Retail Food Group. The struggling listed food and beverage company, which operates under the franchise model, has recently run a process for some of its brands in an effort to drive down debt.

Investment bank UBS is said to have been working with RFG, along with Deloitte, while KPMG is running a process for its Crust Pizza brand. Efforts have also been made to sell the Donut King and Pizza Capers brands.

At the Turnaround Management Association Australia Conference in Sydney last week, Korda Mentha’s annual TMA Survey showed the retail and construction sectors were the industries most likely to decline over the next 12 months, with 72 per cent of respondents expecting a decline in retail.

However, 86 per cent of respondents believed the availability of external financing for turnarounds was better or the same as it was for 2016, with an increase of “non-traditional” funding sources available, including money from hedge funds, private equity and special situation funds.