Private Equity Investment Guide for Franchisors

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For many brands, an investment by a private equity firm means the influx of badly needed capital to accelerate new growth, while for some, it can be a life- and business-changing event. Today, we’re seeing Franchisors of all sizes and stages being scrutinized by private equity investors. There are millions of dollars that are literally up for grabs. Are you ready?

BoeFly’s founder and CEO Mike Rozman recently moderated a webinar featuring a panel of Private Equity representatives. The webinar gave insider information to Franchisors, on what Private Equity looks for, how to attract their attention, and keep it once you have it.

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These are people who want to help you because they want to see you succeed.” – Mike Rozman, CEO BoeFly

The following Private Equity Guide for Franchisors will help you understand what an investment can mean for your brand and how you can attract this style of business capital.

What kind of money can you expect from a private equity investment?

The short answer is – it depends. A typical private equity firm that is looking to invest in a franchise will usually bring between $5 million to $700 million to the table. Again, the amount available to be invested depends heavily on several factors like the number of current franchises, your business history and financial health. It’s a number that can be discussed once the two parties have begun talking.

Some of our existing businesses aren’t yet franchised or just beginning to franchise. The goal is to grow them through franchising, and occasionally, selectively re-franchise to grease the skids of franchise growth” – Andy Laurence, Franchise Group Inc.

What can I do to make my franchise attractive to private equity interests looking to invest?

According to an expert panel, Private Equity investors are typically looking for brands that can be readily franchised as well as brands that are currently franchising. A typical franchise brand would have between 30 to 200 units, an EBITDA of $1million to $5 million and consistently high growth. For most private equity investors, it’s important that the founder is still involved in the business and has plans to remain involved. The reason for this is simple; they want a partner that’s looking for access to capital and expertise in driving franchise growth, and help developing the brand while remaining hands on. The bottom line is that most – if not all – Private Equity investors aren’t interested in stepping in to run the business or replace leadership.

We’re not going to come in and change the menu or the brand culture or anything like that. We’re just going to help put processes in place and help the team prioritize how to scale more quickly.” – Tom Wells, 10 Point Capital

How do I get on Private Equity’s radar?

For business owners looking to get in front of private equity, it can be as simple as reaching out. This can be accomplished through LinkedIn or other business apps. A lot of new opportunities are found at Industry Conferences, through networking and casual conversations. The dialogues that start at these events can sometimes turn into an investment sometime down the road. Private equity firms are incredibly responsive and getting a conversation started is often all it takes.

These investors are using the same sources of information and reading the same publications and web sources that you do to keep current on the franchising world. Recommendations also include getting on Entrepreneur magazine’s 500 list, participating in panels at franchising conferences and hiring a PR or Advertising Agency that can get your business placed in trade magazines and social media channels.

“. . . everyone has gone through and picked out companies they liked and probably started to reach out. Those things are really powerful in attracting private equity.” – Tom Wells, 10 Point Capital

How do I develop a relationship with Private Equity Investors?

Most private equity investors prefer to get to know the franchise founders early on. Private equity is looking for brands with their founders and CEO’s heavily involved in the business as they are the creative and visionary force behind the brand, while the private equity firm will remain in the background as the operational focus for growth. Next steps include having multiple conversations to gather background at which point they are happy to give out advice on the steps the Franchisor should take that would benefit the business and put them in a good position to be ready for a private equity investment down the road. Think of your private equity interest as a trusted partner that expands your network of contacts and grows your knowledge base.

Does private equity bring any value to your franchise brand besides a financial investment?

A private equity firm has a background and knowledge base gained through years of interactions and financial dealings with businesses like yours and they are a great resource that should be used frequently. A private equity investment does not mean you lose control of your business, it just means you gain a valuable partner that is a subject matter expert. They will typically have opinions that are backed up with data and examples to assist you in best practices, processes, and priorities.

We don’t fancy ourselves to be able to build a brand and operate the way you can. We are active in learning best practices and providers of services that are proven to lend success for other brands. With a portfolio of companies, we have the knowledge to offer.” – Pat Sugrue, NewSpring Capital

Private Equity investment is just one of the many ways to obtain funding

The best source of funding will always depend on your company’s specific needs, qualifications, and industry, among other factors. Take a look at some other possible options.

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