PE Profit Ladder Articles
Are PE Franchise Investors in a Funk?
Is private equity in franchising stuck in a funk? Deal volumes are way down and it's challenging now to create great exits, especially if buyers leaned in a few years ago and bid high while interest rates were low. But don't be fooled by the temporary M&A activity slow down! PE's interest in franchise businesses remains resilient. For example, both the Create Emerging Restaurant Investment Conference (Nashville, October) and the Restaurant Finance and Development Conference (Las Vegas, November) are expected to be packed with investors looking to connect with great brands and teams. The franchise business model is attractive and long term growth prospects for franchising are strong. In the short term, some PE sponsors may take "good" rather than "optimal" exits to return cash to investors, including trades between continuation funds. But PE will continue to invest in franchising because the model is attractive and resilient. It's also a great time to a proven operator, since PE is hiring operating talent to help transform and accelerate their holdings. Recruiters are busy! PE must hit their acquisition business case. Behind the scenes, PE firms, M&A advisors, legal teams, and CPAs are preparing for what is predicted to be an upswing in deal activity in 2025. And a few impressive deals are still set to close this year...
Consider These Points When Selling Franchises During A Contentious Election Season
"Election jitters" can negatively impact the franchise development process. If your franchise sales have stalled, or you're suddenly hearing "We're going to wait" from prospective franchisees, here are tips to reboot growth.
Franchise Sales Disclosures Improved in California, Model For Other States
California signed into law new requirements for franchise sellers related to disclosure and registration.The law was developed over a two year period through an alignment of stakeholders across franchising led by the IFA, AAFD, and CFA. The objective is to provide prospective franchisees with full transparency about the role of franchise sellers and how they are compensated, which is important information that should be included in the due diligence process. This is likely to be a model followed at least in part by other states. The legislation will go into effect July 1, 2026.
Key Takeaways from Springboard Conference: M&A Session "Art of the Deal"
Key takeaways from the panel of M&A experts at the 2024 Springboard Conference, moderated by Alicia Miller of Emergent Growth Advisors: "The Art of the Deal - How founders can prepare in advance to achieve the best possible outcomes." 1) First and foremost: focus on unit level economics - profitable & happy franchisees build maximum enterprise value! So simple, yet often overlooked! 2) Collect franchisee P&Ls AND cash flow statements from the beginning and use that information to coach to better results. Buyers will want to cut this data multiple ways 3) Recruit franchisees carefully - quality over speed 4) Ensure you're opening what you're selling or that sold-not-open funnel will go from looking attractive to being a liability. If you can prove you're opening them and ramping franchisees to profitability quickly, you may be able to recapture some of that SNO value in a transaction (aka "full maturity value") 5) Get to know the landscape of potential buyers early - socialize and look for cultural fit 6) Track record matters, especially if you plan to roll equity (and most buyers want you to do this) 7) Know what you want to accomplish and what you're looking for in a potential capital partner 8) Deal terms can be tricky - experienced advisors can help you navigate 9) Franchising continues to see robust buyer interest, but there is still a bit of a gap between buyer and seller expectations 10) It's tough to make forward predictions, but the panel was pretty optimistic that 2025 is going to be a busy year for franchise M&A
Level Up! Podcast with Nick Lopez: Navigating the Competitive Surge: Revolutionizing Franchise Success
The founder of Emergent Growth Advisors, shares how private equity is reshaping the franchise landscape by driving unprecedented success and innovation. With rising competition and heightened expectations, PE-backed franchises are unlocking new levels of profitability and expansion. Listen in on how this investment surge is not only transforming brands but also creating exciting opportunities for franchisees and vendors alike.
PE Squeeze: Investor Pressure to Exit & Return Funds
European point of view from recent private equity conference at covered by Financial Times, but themes mirror much of the squeeze we're seeing here in the US: 1) Drop in small PE funds; 2) Flight to large funds (mega-funds heading toward record fundraising year); 3) Increasing investor pressure to create exits & return funds; 4) Longer holds have been necessary recently to drive ROI; 5) Tougher for small generalist PE firms, specialists doing fine; 6) PE firms globally are sitting on record 28,000 unsold businesses (source: Bain) ***** Franchise spin: 1) Coming into 2025 it's setting up to be an active trading year; 2) Good exit may outweigh optimal exit for some PE-to-PE trades; 3) Extreme pressure to hit growth business case; 4) Great operators & franchisees have negotiating power in recruiting discussions; 5) High quality franchise businesses still sought after acquisition targets; 6) When does the "music stop" on PE-to-PE retrades? At some point, there may be no logical PE buyer and some assets may need to find a long hold family office to get an exit if IPO or reverse SPAC aren't options...
Half of Those Searching For a Business To Buy Don't "Need" to Buy
According to Franchise Insights, 43% of seekers are currently employed full-time (down from a record 62% in June) and another 14% are existing business owners looking for another business to buy. Read that sentence again. More than HALF of people looking to buy a business today don't "need" to do so. Review your franchise website and unit level economics. Does your franchise opportunity description speak to people who are already gainfully employed or own another business? Why should they investigate YOUR franchise?
Will Inspire Brands Pursue IPO?
It has long been expected that Roark would take Inspire Brands public. Will this happen soon? The brand has recently been aggressive about opening new markets and also creative co-branding / co-unit opportunities within existing stores.
Playa Bowls Acquired by Sycamore Partners
Playa Bowls was just acquired by Sycamore. Surprise? No. Playa brought in several new investors in July 2021. At that point the company was valued at $67.8M and had >100 units. It continued to grow, adding 150 units. It's the PE Profit Ladder at work. Now it's time to bring in an investor with deep retail experience to drive the next wave of expansion. A 3-year hold for Tamarix Equity Partners, almost to the month.
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PRIVATE EQUITY’S IMPACT ON FRANCHISING
EMERGING BRANDS
TRENDS
BUILDING SMART
PROSPECTIVE FRANCHISEES
TURNAROUNDS & CASE STUDIES