2014 Year End Overview | M&A in Franchising
The McLean Group
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Mergers & Acquisitions in Franchising
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Given the relative dearth of franchisors of considerable scale, investors interested in participating in the
franchise sector should consider the benefits of creating a consolidation platform stemming from one
strong brand. While some franchisors may have tremendous brands and growth potential, they lack the
infrastructure and perhaps team depth to support a diversified brand platform. In other cases, the brand
has so much growth potential on its own, the team may prefer to avoid diluting its efforts with other
brand add-ons. In the case of a franchise concept that has a strong, complete management team across
critical functional areas, combined with a solid, expandable IT infrastructure, creating a multi-brand
platform could offer an attractive investment opportunity for private equity firms seeking scale within
the franchise industry.
To determine if a multi-brand franchise platform could yield positive investment returns, potential
considerations may include:
Potential Upside
:
Valuable Team Resources
: Consolidation offers the potential to leverage or rationalize teams in
finance/accounting, legal and information technology. There may be an opportunity to realize cost
savings or bolster leadership where duplicate teams exist or functions are outsourced, or functional
leadership gaps need to be filled.
Sharing of Operational Best Practices
: Either at the corporate level or franchisee level, having
multiple brands that interact can facilitate the adoption of best business practices across the network.
Many existing multi-brand concepts have summits or conferences periodically where all brand teams
and franchisees can interact and present ideas, ask questions, discuss challenges and develop solutions
to common problems.
Ability to Provide High Performing Franchisees with Growth Opportunities
: Having multiple
brands within one platform may enable a franchisor to offer existing high performing franchisees an
opportunity to expand within their territories through opening new franchises of other platform
brands. This opportunity provides the franchisor the ability to efficiently grow brands within
territories where it did not currently have a presence by leveraging its existing franchisee system.
Cross-marketing Opportunities
: Assuming the brands are complementary, cross-marketing to the
combined customer base could be advantageous; however, it requires tremendous coordination
across the platform. Franchisees need to have access to a user-friendly CRM system to manage
relationships. This CRM system, in whatever form makes sense for the business model, would
likely need to be owned and controlled at the franchisor level, and appropriate customer protections
would need to be put in place. The franchisees across the brands would need to be willing to share
data to benefit the entire system.
