2014 Year End Overview | M&A in Franchising
The McLean Group
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Mergers & Acquisitions in Franchising
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Potential Considerations
:
Disgruntled Franchisee System
: How competitive are the franchise brands? If they are too
competitive, the acquiring franchisor may have considerable issues across the franchisee network,
especially if brands compete for similar customers within the same geography and/or the franchisor
plans to consolidate two brands into one brand. While this strategy may selectively be successful,
some franchisors that have attempted to consolidate competing brands either as one brand or as two
brands on one platform, have ended up with franchisee "revolts" or lawsuits.
Need for Distinct Teams in Certain Core Functions
: Even if the brands are complementary and
not directly competitive, certain franchisor functional areas potentially should be kept specific to
each brand. Teams that likely would benefit from being dedicated to certain brands include
franchise development, marketing and branding, and franchisee support. At the franchisor level,
incentives in these functional areas can be better aligned to brand goals if they are kept dedicated to
one brand. Additionally, franchisees may appreciate having franchisor support in certain areas that
are fully focused on one brand versus potentially facing conflicts of interest or more focus and
resources being provided to one brand at the expense of another.
Select Transaction Activity in 2014
Franchisors and large multi-unit franchisees continue to attract significant capital from private equity
and strategic investors. In addition, multi-brand franchisor groups, such as Dwyer Group, are
receiving growth capital to acquire complimentary brands and expand its market footprint. Last
month, Roark Capital Group closed its fourth fund with committed funds of $2.5 billion. Since
inception, Roark has acquired 34 franchise/multi-unit brands, including Anytime Fitness, Arby’s,
Wingstop, Massage Envy and others. Going forward, investors will continue to sponsor franchisors,
multi-unit franchisees, and multi-brand franchisor groups to accelerate growth through the
acquisition of new brands and aggressive expansion of existing brands.
The Dwyer Group Acquired by The Riverside Company
The Dwyer Group, based in Waco, TX, has become a leading operator of multiple service-based,
franchise concepts. Brands include Aire Serv, Glass Doctor, Mr. Appliance, Mr. Electric, Mr.
Rooter, Rainbow International, and The Grounds Guys. In August 2014, The Riverside Company
acquired majority ownership of The Dwyer Group with reinvestment from the executive team.
Riverside Company initially acquired The Dwyer Group in 2003 and sold it to TZP Group in 2010.
Since the recent Riverside acquisition, The Dwyer Group has added Five Star Painting to its
portfolio of service-based brands. Five Star Painting operates in seven countries, including the US,
with an expansive network of more than 1,600 franchisees.
