Readying the Ship for Sale

Five tips to consider when formulating a transition plan, and how private equity can help create value.

By Mark Fleischer, CFE and Lisa Manetta, CFE

Whether your goal is to prepare for succession in the future, sell your franchise business in the near term, or you’re seeking flexible capital for growth, there are steps you can take now to best position yourself for success. For example, have you considered your current state of operations and cost improvement strategy? Or your brand recognition and market position? Are you focused on becoming best in class? Franchises that stand out in these areas are uniquely suited to maximize value, drive growth and make themselves attractive to prospective investors.

When a potential investor looks at your concept, it’s because they believe they can enhance its value – they believe you have strong prospects for growth at your brand. As you formulate your plan, consider these five tips:

Tip 1: Prepare well in advance of a sale

One of the biggest mistakes we see is business owners hoping to sell in less than a year. Give yourself a three-to-five-year time frame to explore opportunities and move toward operational excellence. You won’t maximize value if you rush to sell or your organization isn’t poised for growth.

Tip 2: Look at cost efficiencies

Now is the time to strengthen your balance sheet and trim non-business expenses. To demonstrate your financial viability before a transaction, it’s crucial to focus on cost savings and value-added improvements to your operations.

Tip 3: Communicate your dream

Culture is important to franchises, and it’s often what sets you apart. Share the story of your history and your aspirations for the future with potential investors. Sure, the numbers matter, but here’s a solid opportunity to showcase what’s unique about your business.

Tip 4: Remove potential impediments

Take out potential hurdles to your vision from your operating or capital structure. Why? Because the absence of complications or emotional issues gives buyers clarity and confidence about your organization. Buyers can expect a transaction to proceed more quickly – and with fewer surprises – if they’re able to avoid minority partner issues or the involvement of non-operating partners.

Tip 5: Find a strategic advisor

Whether you need a CPA, an attorney or an expert in mergers and acquisitions, experienced professionals who’ve been privy to multiple transactions can bring you specialized insight. Whether this is your first transaction or your fifth, there’s a lot at stake. Savvy advisors can help you avoid potential pitfalls and maximize value. 

Exploring Private Equity

You should absolutely consider private equity. Thousands of global private equity funds hold controlling and minority interests in multiple industries, including the franchise sector. In fact, many private equity-owned franchises are thriving, including restaurants, hospitality, healthcare, consumer and business service concepts.

Once you’ve partnered with a private equity fund, the work begins to define priority initiatives and map out a value-creation plan. Teaming with the extensive resources of private equity firms allows you to consider a range of options. These include operational enhancements, focusing on additional organic growth, expanding as a multi-brand operator, and undertaking strategic acquisitions that allow you to expand regionally, nationally or globally.

Here are just a few reasons why more and more franchisors and franchisees are partnering with private equity firms:

Financing. Because private equity investors have access to more capital than a typical business owner, they’re able to provide access to capital that can improve systems and infrastructure – two significant avenues for driving business growth.

Strategic alliances. Have you wanted to expand into new markets or service offerings? Private equity firms can leverage strategic alliances that provide access to different suppliers, advisors, franchise attorneys, newer markets, operational improvements and more.

Diversification. Private equity funds can help with diversification. For example, understanding the shift from fast food to casual dining allows restaurants to maneuver through – and best prepare for – changing customer expectations.

C-suite enhancements. Do you have your management “dream-team” in place? It’s no surprise that companies without strong management teams aren’t able to sustain long-term performance. Private equity funds have a vested interest in seeing strong executive leadership and have connections to individuals who can execute your strategic vision.

Purchasing power. Take, for example, a restaurant group owned by a private equity fund that owns other similar restaurant concepts. When managing large quantities, they can leverage their purchasing power on food and other commodities to negotiate lower costs.

Finding the Finish Line

You’ve likely invested years in building your franchise business. You’ve pondered every decision, analyzed every detail, and examined every dollar spent and earned. The same rigorous attention should also be applied to your growth or exit strategy. Don’t rush through this nuanced and often complex process. Is succession, sale or private equity investment the right decision for you? Taking the time to explore your options is the only way to know for sure.

Mark Fleischer, CPA, CFE, and Lisa Manetta, CPA, CFE, co-lead Plante Moran’s franchise practice. Learn more about Plante Moran’s franchise practice here.