How Funding Banks Assist Franchisors Develop

With Deeper Pockets, Rising and Center-Market Franchises Can Zoom to Success

Funding bankers function advisers to franchisors who search capital, typically by working as matchmakers between franchises and personal fairness corporations.  Right here’s how that works: In return for offering cash, the PE agency receives an possession stake – sometimes this might be a controlling/majority curiosity or a 100% buyout – within the franchise. The PE agency is betting that its monetary help will assist a franchise understand larger potential and subsequently enhance in worth. Then the PE agency will promote its share of the franchise for a revenue. 

PE corporations and funding banks have been fairly lively in franchisor offers through the previous few years. A lot of the motion has taken place within the Goldilocks center market: the acquisition of corporations that aren’t too massive and aren’t too small, however excellent.   

Bob Marcus, head of capital markets for Cincinnati-based Fifth Third Financial institution, says there are a few key causes for the attraction of investing in middle-market corporations. For one factor, Marcus says, fragmentation inside the center market lends itself to simpler development inside the sector. As well as, middle-market corporations have sources that smaller corporations don’t and, not like massive corporations, they’ll extra shortly modify to market adjustments and innovation to latch onto larger market shares. 

Every time we help entrepreneurs on the sell-side to assist them discover the fitting accomplice, we’re positively impacting franchising.

J. Patrick Galleher, Boxwood Companions

Boxwood Companions Lively in Center Market

Boutique middle-market funding financial institution Boxwood Partners was busily concerned in facilitating acquisitions throughout 2022. “We had an especially productive yr serving our middle-market shoppers,” says Boxwood managing accomplice J. Patrick Galleher. Galleher additionally expects his firm’s merger-and-acquisition (M&A) exercise to proceed “with comparable momentum in 2023.”   

Boxwood Companions, established in 2007 and primarily based in Jupiter, Fla., discovered buyers for a number of franchises and different high-profile manufacturers final yr. A few of these offers embody: Junkluggers and Coloration World Portray, each of which had been offered to umbrella franchisor Authority Manufacturers; Junk King, offered to umbrella franchisor Neighborly; Granite Storage Flooring, to umbrella franchisor Threshold Manufacturers; Hand & Stone Therapeutic massage and Facial Spa, to Harvest Companions PE agency; Franchise FastLane, to Southfield Capital; Adams Flavors, Meals & Substances, to Deason Capital Providers, Midwest Progress Companions, Brookside Capital Companions and Valesco Industries. 

Umbrella Franchisor Offers

It’s noteworthy that so a lot of Boxwood Companions’ 2022 offers concerned umbrella franchisors. Galleher says these franchisors can provide vital advantages to rising manufacturers. “Franchisor aggregators can present many advantages, together with centralized back-ends, aggressive evaluation, and central-office experience in advertising and different capabilities. This lowers overhead prices and permits entrepreneurs extra time to concentrate on the areas they get pleasure from probably the most.” 

Monetary help from PE corporations and the deal-making abilities of funding banks can place franchises for vital enlargement in addition to lasting stability and profitability, Galleher says. “Rising franchise manufacturers are being set as much as construct their methods for long-term development and success. We [Boxwood Partners] constantly reinforce the necessity for them to concentrate on unit-level economics and franchisee validation and success, in addition to good, affordable enlargement. By specializing in these key areas, a franchisor can develop sensibly and for the long run. It’s a win for the franchisor, their franchisees and the business as a complete. …

“Every time we help entrepreneurs on the sell-side to assist them discover the fitting accomplice, maximize the worth of their enterprise, and shut the transaction on the absolute best phrases, we’re positively impacting franchising.” As a result of the franchise enterprise mannequin is totally different from different corporations’ buildings and operational processes, Galleher advises franchisors to “all the time rent an funding financial institution with expertise within the franchising house.”