Mergers and acquisitions within franchisees have become more of a commonplace over the past three years as resale activity gain traction in franchising; take, for instance, the levels of transfer activity in franchise systems. These have increased from slightly over 3% to almost 5% between 2014 and 2017, according FRANdata’s internal database. From the looks of it, this will be a trend that continues well into the future.
Private equity and hedge fund monies seem to be focusing their energy on large single and multi-brand multi-unit operators. Recently, CapitalSpring financed an acquisition of 38 Panera Bread cafes for Manna Development Group, a franchisee with more than 135 franchised locations across six states. In the same vein, Argonne Capital Group has invested close to $530 million in various franchises. This includes the sole master franchisor for IHOP in Florida, and two franchisees in the system with operations in Texas and 7 western states. Private equity interest is not limited to franchisees within the food vertical; there has been equal interest in financing and acquiring franchise operators in growing verticals like fitness centers and home healthcare. This month Bandon Holdings, one of the biggest franchisees in the Anytime Fitness system, received a majority investment from the private equity firm Fireman Capital Partners to help fuel its future growth. Earlier this year, South Carolina based health care real estate investment firm, InvestSouth, LLC, acquired in-home and hospice care provider Interim HealthCare of Greenville, Inc.
Franchisees have gained the attention of private equity firms who are attracted by the proven business concept, the potential for organic and rapid growth, or an expansion given the rise in resale activity among franchisees, together with the goodwill and strength of an established brand that franchise systems can provide. Understanding its framework and its moving parts is paramount for advising on any franchise M&A transaction.