The Rapidly-Growing Franchise Industry Offers Strong Opportunities for Private Equity Investment

Private equity firms have taken note of the opportunities in franchising -- and for several years and have been aggressively buying in.?Private equity (PE) firms typically pump in capital to expedite growth and then sell their share of the company at a profit down the road – earning money for investors in the meantime.

Part of franchising's allure has been its business model which involves licensing a brand name, system, and products to independent operators who pay fees and royalties to the franchisor. Franchising allows a business to expand its reach and customer base without investing heavily in new locations or employees.

Private investors’ appetite for franchising’s scalable revenue stream has been gaining steam for more than a decade. First, through outside capital investments in single brands. And more recently, in the growing numbers of large multi-brand franchisors such as Neighborly and Authority Brands in-home services; and Inspire Brands, Focus Brands, & Yum Brands in restaurants.

Private investors, typically come to the table with deeper pockets and a higher risk tolerance than traditional lenders.?

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How Private Equity Capital Helps?Franchisors

Private equity presents an exciting way to grow for many brands, so long as they’re willing to open themselves up to outside influence. Young but growing brands are attractive to boutique PE firms, where 50 units or more seem to be the sweet spot. Larger PE firms will look for brands to have over 100 operating units.

Bigger brands may attract bigger investments, but it is really about finding the right fit. Franchisors and other franchise-related entities willing to bring in investors should ensure that the private equity firm knows its industry well and has reasonable performance expectations.

Private equity firms are data-driven investors looking to reap strong returns for owners and shareholders. After investing, they can help franchisors with expansion into new markets, leadership/management expertise, relationships with suppliers/vendors, brand-building, and streamlining processes and functions. PE firms are investing across diverse verticals -- businesses from restaurants and home services to education enrichment and senior citizen health care.?

Over the next decade, PE will "professionalize" franchising by buying thought-leading suppliers with strong intellectual property with the same gusto they are now buying franchisors.

It is best to seek a balance between not only what you love and are good at, but what the world truly needs, and you can also be paid for. This framework might help you find the way when considering different paths. While franchising isn’t right for everyone. For those that dream of freedom financial and independence, it could be a vehicle and strategy for achieving success.

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Reach out if you would like to explore franchise brands and emerging opportunities. We cover a broad spectrum of opportunities. But our focus is on the health & wellness arena. You can email me [email protected]. Or, simply call/text?me at 646.505.8262.