Mergers and acquisitions in franchising: strategies for 2014 and beyond

By Bret Lowell, Abhishek Dubé and Burt Yarkin

The mergers and acquisitions (M&A) market is very strong for franchisor and large multi-unit franchisees of scale today — good news for those looking for a sale or growth capital. What key factors drive investor demand? How should investors be thinking about their exit plans? What due diligence issues do they face? In this paper, we look at these concerns and suggest strategies and steps for franchising M&A.

The M&A market continues to be robust for franchising. Over the past three years, there have been more than 200 acquisitions involving franchising. Key acquisitions since 2013 include private equity firm Apollo Global Management’s acquisition of CEC Entertainment, which operates 577 Chuck E Cheese’s restaurants, for $1.3bn (£770m). Other notable transactions include TZP Group’s recent acquisition of Snap Fitness for $200m, Centre Partners’ acquisition of Captain D’s for $175m, TSG Consumer’s acquisition of Planet Fitness and Roark Capital’s acquisition of Anytime Fitness. 

During the same time, we have seen significant capital injections in franchise systems. For instance, over the last three years there were more than 114 private placements involving franchise companies. Notable financings since 2013 include European Wax Center’s $24m financing from Princeton Ventures and Brazos Private Equity in March of 2013, as well as PizzaRev financing from Buffalo Wild Wings in March of 2013, Lyfe Kitchen’s $15m financing from an undisclosed investor and Project Pie’s $2.5m financing from Lee Equity Partners…

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