Australia: Acquisition of a Competing Brand – Some Issues on Integration and Conversion

Last Updated: 10 August 2006
Article by Peter Buberis

Whether for issues of market share, possible shut down or reasons associated with efficiency, the acquisition of a competing brand represents an intellectual challenge for the management team charged with integration.

This is especially so when protected territories are contractually granted, often for significant periods of time post integration, which is often the case in franchising. There remains the distinct possibility that, notwithstanding common ownership and management structures, the brands will need to retain their identity in the market for a significant legacy period. This article addresses some of the issues facing management that require careful consideration to ensure that the benefits of acquisition or merger are realised.

Pre-settlement phase

The commercial decision to enter into negotiations is predicated on identifying the benefits that integration will pose. It is not however an unqualified assessment, as much of what underpins the decision will not be known until completion of an extensive due diligence. To the extent that a due diligence will range across financial, accounting, tax, human resources and legal issues, the essence of the initial reasoning will need to be sustained by these further enquiries as will the development of a growing understanding of the organisations’ culture and the consequences of bringing them within the common ownership/management structure.

Legal due diligence

It is the lawyer’s task to identify the contractual relationships and binding obligations that exist within the target company’s business. These need to be assessed as to their impact on settlement and the subsequent settling down of the post-settlement business.

The strength of contractual obligations permitting licensees to continue with brand and business methodologies (or models), should be assessed both at the acquirer and target level so that a grid of relationships and overlaps concerning the merged systems can be developed to allow commercial decisions to be made as to any resulting tensions. For example, there may be differences in fee structures or differences in Licensee/Licensor obligations.

Similarly, decisions will need to be made as to non-competition obligations where licensees choose not to stay within the system, either on expiration of rights and a failure to take up renewals, or should commercial proposals be put to them by management in order to ease issues of friction resulting from settlement.

In the absence of a commercial resolution devised and put forward by management to licensees of both systems, the legal conclusion may be that the continued conduct of brands and rights in parallel must continue for a time before conversion or relinquishment opportunities arise.


Relying in part on the legal conclusions arising from a due diligence and the cultural and other assessments made, management needs to develop a range of strategies including, importantly, a communication plan both as to ongoing licensees and the all important customer base.

The retention of parallel brands post settlement further gives rise to particular issues associated with ongoing accounting, customer service, technology and, of course, marketing.

Tensions with licensees

Not all licensees will respond positively to the merger of competing brands. Resistance may be found at a number of levels including:

  • Passive resistance - This form of resistance simply involves a reliance on a pre-existing grant of rights. In the absence of commercial incentives from management or circumstances of breach or ultimate expiry of those rights, the new entity may simply have to honour and manage pre-existing obligations, even in the context of the subject brand diminishing in size and importance as time passes after settlement.
  • Active resistance - If there are licensees who are unable to grasp the benefits of a merger, tensions will be created where the holder of rights to one brand is unhappy about the other brand being introduced into their area. While the original agreement may prevent the licensor from setting up similar branded stores within an exclusive territory, drafting may not be sufficiently broad to prevent the new merged entity from setting up the competing brand within the same area. The presence of the competing brand may not be well received. While this may not be a breach of the original agreement, as the original grantor is not running the same system, the licensee engaged in active resistance may either agitate within the system or seek specific legal advice on its rights.

This article does not permit a significant analysis of the unconscionable conduct provisions contained within section 51AC of the Trade Practices Act and their possible application. There is, however, potential for a licensee to argue that the licensor was under an obligation, albeit implied, to grow and develop the system to the benefit of the grantee and that the merger and possible quarantining in size and development of the acquired brand may breach this obligation. Without expressing a definitive answer, it is suggested that in the absence of an expansively drafted obligation within the original agreement there is unlikely to be an implied obligation that would cause the licensor any difficulty in this regard.

Strategy for dealing with active resistance

Legal advisors will confirm whether the original documentation permitted the licensor to mandate a brand conversion under the agreement, albeit with some financial assistance from the licensor. This may permit the adoption of the new and dominant system brand together with directed re-fits on shop premises, signage procedures and of course, new products.

Running hand in hand with a position on legal obligations is a necessity for the management team to demonstrate the benefits of conversion by reference to the resultant economic outcomes.

As a general observation, there is always a necessity to communicate clearly and strategically with concerned licensees. The benefits of action should be articulated in a manner designed to win over, if not all existing parties, then at least the majority.


The Australian Franchise Code of Conduct and the disclosure obligations under it will place an immediate obligation on management to re-draft and serve disclosure documents providing sufficient detail to disclose what is in fact a significant and material alteration to the conduct of both branded systems. This gives rise to a timing issue, namely what disclosure may be required during the possibly sensitive and in-confidence due diligence period when a final decision on acquisition/merger may be conditional. What consideration must a potential purchaser of licence rights to the system that is intended to be acquired and perhaps shut down/run down be given? Does that system treat it as business-as-usual or suspend grants pending a final decision or merely identify the trigger point at which new disclosure information will be provided?

An appropriate solution may be the suspension of further grants and negotiations with potential franchisees for at least the period of the due diligence and the satisfaction of any pre-conditions. This may carry some financial cost, but it will protect management against complaints of dissatisfied new franchisees who have learnt about the merger only after they have adopted the system and their cooling off rights have expired.

Conduct of multi-brand systems post-settlement

As indicated, this may be a necessary consequence of the merger. The key issues that likely arise are:

  • Resistance from legacy franchisees who have brand loyalty and are trying to avoid competition within their markets.
  • Necessity to support both systems ensuring that if a brand is intended to be shut down or run out, then the level of support is consistent across both brands and meets the obligations of the grantor notwithstanding that the system is not intended to grow and will ultimately be phased out.
  • Keeping marketing initiatives and advertising funds separate (although in appropriate instances the dominant brand may need to contribute and support the legacy brand to ensure fair marketing support to legacy licensees where appropriate).


The views expressed in this article are derived in part from a paper delivered at the 39th International Franchise Association Annual Legal Symposium in Washington, 8 May 2006.

This publication is intended as a first point of reference and should not be relied on as a substitute for professional advice. Specialist legal advice should always be sought in relation to any particular circumstances and no liability will be accepted for any losses incurred by those relying solely on this publication.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Mondaq Advice Centre (MACs)
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.