The role of franchise relations in mergers and acquisitions: solid franchise relations is a key element to a strong and viable franchise system, particularly when combining two franchise systems.

Author:Bloom, Bruce V.
Position:FRANCHISE RELATIONS
 
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Mergers and acquisitions--whether defined as third-party acquisitions by private equity, private investors, strategic buyers, family members, or the franchisees themselves--have become an important and growing activity in the franchise industry today. This activity has involved not only the acquisitions of franchisors and their systems but also the franchisees themselves.

In 2014, the McLean Group, an independent investment bank, tracked more than 300 private equity firms that had invested in franchising and were active in the market. According to its report Mergers & Acquisitions in Franchising: 2014 Year End Overview: "Almost all of these firms are looking for additional brands in which to invest. In 2014, at least 20 deals were completed in the franchise industry by private equity firms. Valuations for these franchisors generally have been considered to be at a 'premium'--or at least at levels considered above average M&A deal valuations in the middle market (i.e., many franchisor transactions are completed at high single-digit, if not double-digit EBITDA multiples)."

Given the importance that franchise relations, confidentiality, trust, transparency and well-planned communications play in the M&A process, it is not difficult to understand why there should be a major emphasis on the "best practices" in franchise relations.

IFA represents more than 1,100 franchise organizations operating within a variety of industries, segmented further into a vast array of vertical markets, and all located within a kaleidoscope of geographic and cultural environments. With all this diversity it is no wonder there is no single strategy for growth and development within the industry. As franchising has matured the practice of mergers and acquisitions, venture capital investments, family and partner successions have all grown substantially as growth and ROI strategies.

NEW M&A HANDBOOK AVAILABLE

IFA's Franchise Relations Committee has focused on the significance of franchise relations in the franchising industry. It has developed a significant resource library of articles and reports focused on recognizing and enhancing franchise relations in our industry. The Role of Franchise Relations in Mergers and Acquisitions handbook was recently completed with the intent to discuss the impact of franchise relations in M&A activity and to present suggestions for best practices to consider in effectively managing franchise relations before, during and after the...

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