The US private equity giant Kohlberg Kravis Roberts (KKR) has bought out dozens of Australian Laser Clinics (ALC) franchises according to Monday’s Australian Financial Review (AFR). Allegedly, this is an attempt to unite the network after two years of unrest and claims that systemic price gouging is pushing some to the wall. The purchase of at least 38 clinics, with more in the pipeline, could represent almost half the LCA franchised network.
KKR paid $650 million for the Laser Clinics in 2017. At the time, LCA was the leading provider of non-invasive aesthetic treatments in Australia with a network of more than 80 clinics supported by aligned franchisees. Working in partnership with original investors, The Growth Fund, KKR planned to help LCA’s management and franchise network continue to grow through expansion of the clinic network, the introduction of new product and service offerings, and international expansion.
However, during a two-month investigation carried out by The Sydney Morning Herald and The Age newspapers last year, LCA franchisees said the company had gouged them on costs for equipment and supplies, while forcing them to conduct aggressive discounting that made it difficult for them to cover their costs as it conditioned customers to expect unsustainable prices. They also said that head office failed to provide adequate support.
The AFR reported that the purchase price for the clinics is believed to be less than $30 million, ranging from under $300,000 to just over $1 million depending on the size and location of the clinic. The article adds that this is a far cry from the investment sunk into the business by some franchisees – and a long way from the $80 million compensation 52 franchised clinics sought in March last year when they joined forces and lodged a 140-page letter of dispute.
Mediation failed in May last year, the AFR said. A second attempt at mediation was held earlier this year, and the settlement was agreed earlier this month.
