Finding Your Angel: Private Equity in Franchising

March 19, 2018

The right partners help franchise companies thrive. Carefully selecting your backers can supercharge growth.

By Dina Dwyer-Owens, CFE

With low interest rates and a sea of capital driving up prices for attractive businesses, it’s a tempting time to sell any business. Successful franchisors are particularly sought after by strategic and financial buyers – we all know the many positive attributes of a good franchise model!

So now is a wonderful opportunity to bring on a partner to boost the growth of your franchising company, whether it’s through selling a minority or majority stake. And as anyone selling anything, you’ll want to maximize value. Here’s a quick look at trends in private equity franchising investments, and what to seek in a partner.

The Latest Trends

One trend is simply that there is more private equity activity. As more private equity firms learn about the benefits of the business models in franchising, they are investing in both franchisors and franchisees.

Another trend is flexibility, with both control and non-control options available. Private equity has developed considerably in the last decade and sellers can often both obtain liquidity and/or growth capital while also maintaining control of the business. Just be sure you fully understand your rights and controls as explained in formal investment documents (use great advisors in any sale process!).

“Successful franchisors are particularly sought after by strategic and financial buyers.”

Today, private equity firms are buying both franchisors and franchisees. Some firms are attracted to the growth and scalability of the franchisor model while others see franchisees as a good value. They like the ability to underwrite franchisees with consistent performance over a long period of time, enhanced by the leverage available to multi-unit franchisees.

The Right Fit
It’s a seller’s market and more private equity firms are offering more options to franchisors. If you’re ready to explore partnerships, take your time to find the one that works for you and your company. You built a successful business and want to find a buyer who will take care of the company, its customers and its employees. Here are some things to consider:

Values and culture are vital. Find a partner you can trust and one with whom you’ll be comfortable working.
Understand the partners’ experience in franchising.
Ensure that the partner has an effective network of business contacts and consultants that can deliver immediate value.
Check references! Just as you would vet a potential franchisee, vet all potential investors. Call the management teams of the companies they formerly invested in to get the scoop. Drill down and get specific. Ask how the investor behaved when there were challenges. Find how they specifically helped grow the company.

Why it Matters
Maximizing value usually extends over time and therefore means more than just the highest value offered. The right partner will bring value in many other ways. Here are some of the resources an exceptional partner can deliver:

Operational talent. Experienced operating executives can help optimize processes, improve pricing, deliver sales and marketing gains, integrate add-on acquisitions and support management in countless other ways.
Funding for growth. Targeted investments to improve the business, fund acquisitions of competitors or adjacent companies and support other initiatives that make your company bigger and better.
International connections. Sourcing, expanding and selling into new territories is vital for the growth of many franchisors. A firm with global reach can ease and speed a franchisor’s geographic expansion.
Networks that work. Experienced investors have talented staff and advisors who can tap new avenues of growth, share ideas and polish rough spots in the company.
Being part of something bigger. An investor with significant scale can help your company take advantage of pooled purchasing to save on costly line items like health insurance, shipping and other common business needs.

“Take your time to find the partnership that works for you and your company.”

A True Partnership
As the former CEO and now Co-Chair of Dwyer Group, I have gone through three sales processes with private equity firms. All three partnerships were successful, including with our present partners, The Riverside Company. In fact, this is the second time Riverside has invested in Dwyer. Our initial experience was in 2003 when they first acquired our family-owned business. In 2010, we sold to TZP Group. Then we went back to Riverside in 2014. We’d had a great partnership with Riverside before, so they passed the reference check with flying colors. Once again, it has been a true partnership.

Led by CEO Mike Bidwell and supported by Riverside, Dwyer has grown to heights I couldn’t even imagine when Riverside first invested in 2003. They have been very helpful in working with Mike to continue to professionalize the business by creating a formal board of directors, adding management talent, improving our operations and supporting 10 add-on acquisitions that delivered new franchise concepts and improved our international reach.

Today, Dwyer is a holding company of 19 consumer brands, 17 of them being service-based franchise organizations representing more than 2,800 franchisees in nine different countries. We owe a lot of that success to finding the right partners along the way.

Whether you’re looking to cash out of your franchise business or just want some growth capital and expertise via a minority investor, be sure to do your homework and find the right fit. It will really pay off in the end!

Dina Dwyer-Owens, CFE, is Co-Chair of Dwyer Group and a leading author and speaker about ethics in business. She served as IFA Chair in 2010. Follow her on Twitter @DinaDwyerOwens or visit dinadwyerowens.com. Find out more about franchising opportunities at Dwyer Group by visiting www.franchise.org/the-dwyer-group-franchise.