franchise-business-insights

PE Profit Ladder Articles

M&A Update & Franchise Perspective M&A Update & Franchise Perspective

M&A Update & Franchise Perspective: - 95% of M&A activity in 2024 were middle market deals (S&P Global) - PE sponsor to PE sponsor deals reached ten-year high (45%) in 2024. (McKinsey) We have seen this play out in franchising....once on the PE Profit Ladder, brands are likely keep re-trading. - $2.5 trillion of dry powder still available (S&P Global) - Multiples @ exit increased, partly because sponsors were only successfully exiting high-quality assets with strong demand, driving up valuation averages (McKinsey). The rest were relegated to broken auction status and must try again later. - Median global buyout entry multiple 11.9x (McKinsey). We have seen franchisor trades in franchising exceed averages for similiarly-sized non-franchise deals. But too many sellers still come to market with inflated expectations - or we would see more deals getting done. You have to read the room. - Average leverage 4.1x debt to EBITDA (below 4.7x seen in 2021) demonstrating both valuation pressure and underwriting discipline (McKinsey) ....said another way, frothy pricing specifically driven by cheap debt that we saw in 2021 hasn't returned and likely won't anytime soon. Only high quality assets are seeing spirited bidding but this is based on their own merits. - Public to private deals will get more attention this year - if the markets undervalue good companies taking them private may be a better option than acquiring something from a downstream PE fund. - IPO exits remain challenging. PE-backed IPOs fell 7% in value and 20% in count in 2024. (McKinsey) In franchising, this means a small number of very large funds look like IPO-waiting rooms where assets can be carefully groomed, optimized, and combined to create IPO-ready packages, while tapping the securitization market to pay themselves for the trouble while they are waiting. - Exit backlog remains an issue. Average buyout hold time is 6.7 years. (McKinsey). We've seen more re-trading among limited partners and continuation funds recently to cope with this, but it's not a long term solution. This forces more PE sponsors to focus on the operating mechanics of value creation, not financial engineering. In franchising, this means a focus on everything that keeps franchisees focused on unit growth and increasing same store sales. The flip side is the opportunity for well-coordinated franchisee voices to be HEARD because management and sponsors need engagement and momentum from the franchisee base.

Categories: All, Impact on franchising, PE Profit Ladder Newsletter, Trends

Alicia Miller Joins FRANdata as Managing Director Alicia Miller Joins FRANdata as Managing Director

FRANdata, an industry-leading research and advisory firm offering market intelligence that enables clients to grow their business in franchising, is pleased to announce the appointment of Alicia Miller as Managing Director. In her new role, Miller will drive the expansion of FRANdata’s advisory practice, working with private equity investors, PE-backed franchisors, and multi-brand platforms to further enhance client growth and investment performance.

Categories: All, Building smart, Emerging brands, Impact on franchising, Prospective franchisees, Trends, Turnarounds and Case studies

FRANdata's 2025 Franchise Economic Outlook Report Is Available FRANdata's 2025 Franchise Economic Outlook Report Is Available

FRANdata's 2025 Franchise Economic Outlook Report is the most comprehensive annual update on the "state of franchising" available.

Categories: All, Trends

Multiply Your Success In Franchising Podcast Multiply Your Success In Franchising Podcast

This podcast goes deep on what private equity wants to acquire, and avoids, in the franchise sector. So much has changed in franchising! We talk about the investment ladder and who/why is interested at various inflection points along the way. Emerging brands need to be prepared to go it alone for awhile! What should founders think about far in advance? Franchisees also need to think about their exit strategy upfront. Is PE active in your system as a consolidator? What happens when PE becomes a major force at the franchisee level in scale systems?

Categories: All, Building smart, Emerging brands, Impact on franchising, Trends

Why Brands Can't Find PE Buyers - and Why It May Improve Franchising Why Brands Can't Find PE Buyers - and Why It May Improve Franchising

Private equity has been active in franchising since the early 1990s. A PE-exit, not an IPO, is now the dominant exit-method for scale franchise businesses. Yet fewer than 20% of active brands have worked with a PE partner. After all this time, why isn't the ratio 30/70, 40/60 or better? What is blocking this option for many in the "long tail" of unaffiliated concepts? Not all want a PE partner of course. But lack of desire neither explains the current ceiling of 4,000 active brands, nor the 20/80 ratio. Market signals are clear for those willing to hear the feedback and make changes. Franchising would benefit if more brands used the PE buyer lens to self-examine and make improvements.

Categories: All, Building smart, Emerging brands, Impact on franchising, Trends

Society Podcast Society Podcast

In this episode we talk about private equity in franchising, entrepreneurship, what franchisors get right and wrong, what PE looks for, the importance of building a personal advisory board, and the breadth of support that can be found within the franchise community.

Categories: All, Building smart, Impact on franchising, Trends

Pizza Factory Acquired by PE-Backed Wonder Franchises Pizza Factory Acquired by PE-Backed Wonder Franchises

Pizza Factory was recently acquired by Wonder Franchises, backed by Tucker's Farm. Now begins a new chapter 30-year old brand. There are many opportunities in franchising to unlock new growth opportunities with the right support and mindset.

Categories: All, Building smart, Emerging brands, Impact on franchising, Trends

FranDevCo Acquired by PE-Backed Franchise Growth Platform FranDevCo Acquired by PE-Backed Franchise Growth Platform

As Mark Twain said "During a gold rush, it's a good time to be in the pick & shovel business." Franchise growth enablers remain a hot sector within franchising. L2 Capital's Full Spectrum Franchise Consulting announced today it acquired FranDevCo, a franchise sales organization. We can expect more M&A activity and consolidation among franchise growth enablers.

Categories: All, Impact on franchising, Trends

Optimism for 2025 Restaurant Finance and M&A Optimism for 2025 Restaurant Finance and M&A

After a slower than usual year (despite some big headline deals) we expect restaurant dealmaking to pick up. And at the unit level, systems shouldn't ignore ongoing acquisition entrepreneur demand. There are searchers with capital looking for chunky assets to buy and strong systems that are open to consolidation. Make sure your website has a landing page specific to acquisition entrepreneurs so they know what resale opportunities are coming available.

Categories: All, Impact on franchising, Prospective franchisees, Trends

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