Lesson On Franchise Ownership From Private Equity Giants

A recent client visited with me to discuss options in franchise ownership.? He had formed an investment partnership after being downsized from a high six-figure executive position. He and his partners were curious but skeptical about larger multi-unit franchise ownership.?

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The group questioned whether franchises were serious businesses which could scale and could eventually replace their incomes while building equity. They were open to ideas and they believed, “the real estate and equities markets are too volatile now". They also wanted to avoid investing in capital intensive and risky restaurants or fast food”.

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I asked my client if he was familiar with private equity companies such as Roark Capital, Blackstone Group, or KKR which of course he was. These PE firms have invested heavily into franchising after doing extensive research. It makes sense to piggy-back on their expertise.

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Think of franchise ownership as a business with a safety net.? Strong franchise companies have proven business systems which are fundamental to continuing growth. ?You don’t need to reinvent the wheel or make costly mistakes. Private equity brings additional resources for growth, professionalism, and operational efficiencies.

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Roark Capital has a huge stake in franchises in automotive, fitness, and pet services.? KKR purchased Neighborly Brands, a giant in home services franchises. (Side note.. Ever heard of Magic Johnson, Shaq, LeBron, Robert De Niro or Mark Wahlberg? Each is heavily invested in franchising.)

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These private equity firms and wealthy individuals look for franchises with strong finances, excellent leadership, proven business systems, satisfied franchise owners, and scalability.? Most PE frims are risk averse; they are effective risk mitigators and look for stability, growth, and positive cash flow.

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I told my client, "You and your partners have impressive business knowledge and experience. You’ll bring that same experience and expertise to successful franchise business ownership and you’ll have extensive training and ongoing support. We all know that there are no risk-free businesses. There is no shortcut to doing thorough research". One of my roles as a franchise consultant is to guide clients through an efficient but thorough due diligence process.

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For this group of investors, the examples set by the private equity firms provided a level of comfort to move forward in a comprehensive no cost research process.? The goal is to find larger franchise opportunities that match their interests, goals, and investment criteria. ?Through the guided research process, they will secure the data needed to make knowledge-based decisions.

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At this time, they are deep into their due diligence on franchises in healthcare, education, pet services, and home/ B2B services.