PE Profit Ladder Articles
Crumbl Is Reportedly For Sale
It was only a matter of time. Crumbl is reportedly for sale. If they get their hoped for 10x valuation (approx $150M EBITDA) this will be a nice deal. The incoming PE sponsor will bring new eyes, is likely to invest in further growth, and has a predictable playbook. Franchisees in growing systems should always be prepared for the system to trade to a PE sponsor.
PE May Soon Tap Retail Retirement Investors - But Where is Capital Actually Needed?
Private equity may soon be able to tap retirement funds at some level, something PE has long lobbied for. While this may open significant new capital sources to PE investing, there is already an estimated $2 trillion of PE committed funds that need to be deployed. Pouring billions of new dollars into mega deals backed with debt will surely open new opportunities (and new risks) for retail investors. But what we really need are more private capital investors active in the micro and lower-middle market who are adept at this type of investing and who take an operational approach (versus financial engineering). According to the U.S. Census Bureau 2022 Annual Business Survey, 52.3% of business owners are 55 or older. Small business remains a critical economic engine in this country, but we don’t have enough hands-on investment practitioners able to accomplish the lift to help smaller businesses reach the next level. More focus here would unlock significant economic growth and create needed liquidity events for retiring Main Street founders and franchisees. We see this dynamic in the franchise sector, which has been successfully picked over by private equity. Fewer than 20 percent of active franchises have PE investment. Mega franchise deals by the likes of #KKR, #Bain, and #Blackstone are exciting to see, and I also expect to see a surge of #franchise re-trading in 2025-2026 as long-held assets come due to trade again. Consolidation in scale systems will also continue as structural forces nearly guarantee this activity. But what we need are more skilled investors, incubators, and capital pointed at smaller franchise deals. We need to move the needle for thousands sub-scale or sub-optimized franchise systems that are actively marketing their franchise opportunity to prospective franchisees but are currently unlikely to attract PE growth capital and strategic support even if they want it. Smaller systems are where the hard work needs to be done to protect franchisee outcomes, build critical support and infrastructure, and create growth opportunities. If PE succeeds in opening the retirement fund spigot, those funds will be mostly pointed at mega PE firms. We need a mechanism for smaller firms to tap that opportunity so they can deploy more growth capital into smaller businesses. I’d like to see more mega PE sponsor or create fund of funds pointed at active micro and LMM investors.
Franchisees Have Influence Ahead of a Sale Process
If there are issues that need to be addressed, franchisees should be crisp and smart about your "ask." Get organized. Establish the precedent that franchisees can make themselves heard at the boardroom level. Do this well ahead of a sale process for maximum impact.
Crunch Fitness Reportedly For Sale, TPG Looking For $1.5B
Crunch is up for sale, TPG is reportedly looking for at least $1.5B (15x). Fitness continues to be an area of steady private equity interest at both the franchisor and franchisee level.
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...
PE Profit Ladder Market Watch Newsletter: Roark-Backed ServiceMaster Teams with Ace Hardware
Mark Twain is reported to have said, "During a gold rush, its a good time to be in the pick and shovel business." Home services is probably the biggest gold rush in US franchising at the moment. This week Roark-backed ServiceMaster announced that it struck a multi-year agreement with Ace Hardware. ServiceMaster franchisees can now buy equipment and supplies through Ace. This one is interesting because Ace outlets are locally owned and the company itself is a cooperative. Ace has made acquisitions including the Handyman Matters franchise in 2019 and a portfolio of HVAC companies in 2023. There is also private equity activity at the unit level. For example, JPB Partners owns a number of stores and consolidated additional units last year. Could this be a "try before you buy" opportunity for the Ace co-op to see what it's like to work with Roark? Will this prompt other home services franchise platforms to get more aggressive around supply chain initiatives? #bigmoneyinfranchising #franchising #privateequity
PE Profit Ladder Market Watch Newsletter: Two Roark-Backed Fitness Giants Plan to Merge
Orangetheory and Self Esteem Brands - both already backed by Roark Capital - announced their intent to merge. Once the deal closes, this will create one of the largest fitness and wellness platforms, with a combined $3.5 billion in systemwide sales, and 7,000 locations across 50 countries. It is a potential set-up to take the larger platform public, possibly in 2025. #bigmoneyinfranchising #franchising #privateequity #mergersandacquisitions #peprofitladder
PE Profit Ladder Market Watch Newsletter: Largest franchisee in the world seeks majority exit? No, it's just the 6th recap.
A great example of the PE Profit Ladder to accelerate growth. Although the press initially hinted that Flynn Group was for sale, in reality this is just a recap (the 6th)...and happens to be an excellent example of the PE Profit Ladder. Goldman Sachs Capital Parters invested from 2001-2005, Weston Presidio 2005-2011. GS returned in 2011 to invest again. The Ontario Teachers Pension Plan and Main Post along with management invested in 2014. After ten years it is time to return some funds to pension investors (OTPP and MP may roll some forward). Direct investing by pension funds and sovereign wealth funds grew 16% per year from 2009 to 2017 according to Boston Consulting Group. OTPP's good outcome here will likely inspire more direct investment in the franchise sector. But given the deal backlog we'll also see more LPs and direct investors pushing for good exits like we're seeing here with Flynn....hold times have extended and there is a bit of a backlog. This is not an exit and the management team is staying in place The existing investors are exiting and new investors are coming in. #peprofitladder #qsr #franchising #privateequity
PE Profit Ladder Market Watch Newsletter: Camp Bow Wow Acquired by PE-Backed Propelled Brands
When franchise brands sell to non-franchise strategics they often tumble back out (in a fairly predictable way) if/when the strategic's priorities change, especially if franchising is outside their core business model. Camp Bow Wow was acquired by pet hospital chain VCA back July 2014 when CBW had 152 locations...today CBW has around 230. Coming back into the franchise family and especially into a multi-brand platform will likely be very positive for this great brand! Dogtopia in particular likely benefitted from a 10 year run where CBW had 52% unit expansion under VCA while Dogtopia enjoyed 800% unit expansion during the same period. Does Dogtopia have a history of private equity support? You bet. At both the brand and multi-unit owner level. #bigmoneyinfranchising #privateequity #franchising
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