Targeting Franchises

searcher profile

May 07, 2023

by a searcher from Carnegie Mellon University - Tepper School of Business in Pittsburgh, PA, USA

Does anyone have resources or a playbook for targeting franchise owners? Thinking that this might be an interesting rollup strategy for someone who knows a market well.


Anyone currently working on a investment thesis in this space?


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Reply by a searcher
from University of Pennsylvania in Palo Alto, CA, USA
Hi James, I just bought my first franchise as part of ETA. In process of expanding to more locations. I shared my thoughts on this space in other posts and am re-sharing here: Reasons not to buy a franchise: -often don’t have contractual recurring revenues -capped same store growth / growth linked to CPI. More growth is often capital intensive (via new stores or acquisition) -Gating mechanism for growth by franchisor -Barriers to entry — it’s like joining a club -Sometimes limited buyer opps when you choose to exit —> potentially suppressed multiples at times -Labor intensive (labor management / turnover issues) -not talked about/taught as much in MBA programs Reasons to buy: -reason you are in ETA is to buy a going concern with predictable success. Franchise takes that one degree further. Buying proven processes and playbooks, which can decrease risk of execution. Stable and predictable cash flows despite not having recurring revenues. Same store sales are relatively consistent YoY. -systems tend to be fragmented (lots of owners that own few units). Great opps for programmatic systems. -given same systems/processes across locations, easier to quickly consolidate locations -franchise fee as way to license national brand, reduce CAC and get those processes — opportunity to get great bang for buck on those fees -built in system of peers (co owners) from whom you can learn best practices -interesting real estate opps (sale leaseback) -franchise systems not overrun with talented MBA types (unlike home services). Historically more targeted toward mid career folks who want to buy a job. Who don’t have desire or abilities to take it bigger than that (eg programmatic acquisition) -post MBA students will likely be attractive to franchisors, may get preferential treatment
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Reply by a searcher
from Brown University in San Francisco, CA, USA
In addition to the episode linked by ^redacted‌ above, here are a few more Acquiring Minds interviews with searchers who bought established franchise businesses:

How Doug Johns overcame his reservations about being a franchisee to acquire a dream business with $1.8m EBITDA.
https://acquiringminds.co/articles/doug-johns-mr-rooter

Buying Franchises: A Primer for Searchers
https://acquiringminds.co/articles/wolf-of-franchises

How a $40k Acquisition Led to a Franchise Empire
https://acquiringminds.co/articles/james-temple-mathnasium

How to Roll Up Legacy Franchises (to $36m/yr)
https://acquiringminds.co/articles/brian-beers-midas
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