Churner Taco Del Mar Auctioned to DeLuca

Bankrupt franchisor Taco del Mar was auctioned to Franchise Brands last week for $3.25 million. 

Taco del Mar went on a franchise expansion spree that caused the brand to balloon from 74 locations in 2003 to 270 in 2008, according to a filing in U.S. Bankruptcy Court in Seattle. There appears to have been churn as the brand grew, because more than 200 shops closed between 2005 and 2009. – [via Seattle Times]

The Mexican fast-food chain was first reported to churn on Blue MauMau in a guest post of April 2007. A reporter from the Seattle Times posted here asking questions of its franchisees about the troubled company in September 2007. Trade journals and media shortly followed to report on the chain.

Can DeLuca’s team turn around troubled franchisors?

Franchise Brands is assisted by Doctors Associates Inc, the company behind the Subway sandwich chain, and guided by Subway’s founder Fred DeLuca. Its current conglomeration of varied chains includes  Mama de Luca’s Pizza Now pizzaria and Personal Training Institute fitness clubs. It took over financially troubled home investing franchisor HomeVestors, a former advertiser on Blue MauMau, as creditors hovered around the company in 2008. In that year, its Arizona franchisee settled (pdf, 2 pgs) for $350,000 with the state of Arizona for its alleged practices of home foreclosure rescue and mortgage fraud (complaint; pdf, 24 pgs).

Franchise Brands is now in the process of acquiring bankrupt Taco del Mar.

An investment banker recently told me, “life is too short,” when asked about turning around troubled franchising companies. According to him, the harvest of promising and untroubled franchise assets was too plentiful to bother looking at a broken system going bankrupt, confronting litigation and the like. He thought correcting the path of a franchisor that had been put on the wrong track by its founder or franchisor consultant was extremely difficult and too costly.

But Franchise Brands believes there is benefit in buying troubled franchisors in a wide variety of industries at bargain prices.

It will be interesting to watch in real time who is right.