Franchise Brands (FRAN:AIM) opens its acquisition campaign with the £900,000 acquisition of Barking Mad, a dog sitting service with 71 franchisees.

Shares in Franchise Brands gained 13% to 59.4p after an already strong run since an initial public offering (IPO) in August which raised £3.5m at 33p a share.

Headed by Domino’s Pizza (DOM:AIM) chairman Stephen Hemsley, the Barking Mad deal is the first in what is expected to be many as part of a roll-up strategy in the small business franchise market.

Barking Mad delivered £616,000 of revenue in the year to 30 April 2016 and a profit before tax of £155,000.

That compares to revenue at Franchise Brands of £2.5m in the six months to 30 June and pre-tax profit of £724,000.

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EPS ESTIMATES
Franchise Brands - Key metrics (£m)
	2016	2017e	2018e
Revenue	4,379	4,808	5,107
EBITDA	1,185	1,224	1,332
Adj. profit-before-tax	1,115	1,144	1,253
Adj. earnings per share	n/a	1.86p	2.07p
Source: House broker Allenby Capital* (Year-end: 31 Dec)
Note: Estimates were made prior to Barking Mad deal

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‘The central ethos of the company is to acquire complementary franchise brands that provide services to individuals and small and medium sized-businesses and can take advantage of the group’s centralised support function and cross selling of services into the enlarged customer base,’ wrote Ian Jermin, an analyst at Allenby Capital, on 15 September.

Franchise Brands' acquisition of Barking Mad is been financed through £400,000 of cash and £500,000 of new shares issued to the selling shareholder Lee Dancy.

New shares issued as part of the deal are subject to a lockup agreement which means the shares can't be sold for three years.

Franchise businesses aim to earn revenue from the sale of licences to new franchisees, income from monthly licences and product sales to franchisees.

Franchise Brands currently sells licences through its Chips Away mobile paint repair brand and Ovenclean, a mobile oven and hob cleaning service.

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