MULTI-UNIT
NEED TO
KNOW
Buyer’s Guide
BY EDDY GOLDBERG
Is Private Equity
Right for You?
FAQs for Multi-Unit operators
seeking capital in 201
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ou might not know it from reading the news, but there’s a lot of money out there
looking for a good home, and high-performing multi-unit franchise companies
have become targets for private equity investors. Estimates of available private
equity peg the pent-up funds at about $500 billion, more than enough pie for most multiunit franchisees to get a slice—if they have what it take to appeal to investors.
Developments in the mergers and
acquisition universe, along with the growth
in large multi-unit organizations and a stabilizing economy in 2011, have combined
to produce what experts predict will be a
favorable environment for franchise sellers with the right stuff: a strong national
brand; a positive cash flow for the trailing
12 months; an infrastructure able to leverage the investment; and an organization
large enough to make the deal worthwhile
in terms of the costs and time involved
for both buyers and sellers during the due
diligence/courtship process, which can take
six months to a year or more. Real estate
assets are a big plus as well.
Even as the economy writhes its
way toward recovery, however, getting
your hands on the money—and your mind
around the ramifications of taking on a
private investor partner—is another story.
Yes, interest in high-performing franchisee
organizations by private equity firms is ris-
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MULTI-UNIT BUYER’S GUIDE 2012
ing, but is this a good option for multi-unit
operators in need of capital? Is the cost of
money—an active partner, accountability,
loss of autonomy to investors that typically
seek a controlling interest—worth it to a
franchise operator used to calling their
own shots?
We asked a dozen players—franchisees, attorneys, and deal-makers of various
stripes—to tell us what multi-unit franchisees
should know about the current state of the
private equity market, the pros and cons of
taking on a private investor partner, and the
tradeoffs involved. The answer, of course, is,
“It depends