Franchisor consent and buy-back rights
July 17, 2023
by a searcher from University of Sydney in Sydney NSW, Australia
Would you ever consider buying a franchise operation that has both a consent to transfer right and first right to buy-back the franchise operation?
from University of Virginia in North Haledon, NJ, USA
On the ROFR, the key thing is that it's a first right, not a call option...you've already made the decision to exit at that point so the clause shouldn't cause any heartburn. Note that claw back rights based on performance or other metrics are a different story and should be negotiated heavily.
There are many large reputable franchises that operate units as part of their own efforts to improve the system through understanding the ops first hand - I would argue it's a good thing when franchisors also act in a franchisee capacity.
from University of Memphis in 5000 Linbar Dr, Nashville, TN 37211, USA
in Franchisor Agreements. The larger risk is the Franchisor's right to approve a buyer which can impact value. With PE and other roll ups of Franchisors growing, they may insist on a buyer having more liquidity, larger equity injections, etc. This may be good for the Brand's stability but can restrict the number of buyers for an existing Franchisee, which may impact your exit value. So ask the Franchisor about how many franchises have they bought back over the past three years and what is and has been their financial criteria for qualifying a buyer of an existing franchisee.