Franchise Equity Partners’ Post

Another one bites the dust. Franchise Group, Inc (FRG) has lost a second business this year. American Freight has filed for chapter 11 bankruptcy ending a 30 year stint in the furniture and appliance retail world. It came under scrutiny earlier this year when previous FRG CEO Brian Kahn’s past dealings came into question. Those issues led to Kahn’s resignation in January. Franchise Group acquired American Freight in 2019 and combined the stores included in that deal with rebranded Sears Outlet stores it acquired earlier. In 2021, it bought Top 100 retailer Badcock Home Furniture and more before selling it to Top 100 retailer Conn’s HomePlus in late 2023. First Bed bath and beyond, then Conn’s and now American Freight. Who’s next? As a consumer are you happy, sad, or supprised that these kinds of business have failed? Where could they have improved to keep them operating today?

Success isn’t just measured by growth—it’s about efficiency and execution. Our FRANdata FUND Score of 885 is a direct reflection of how Tint World delivers on both ends. I’ve had the privilege of seeing how we have grown this past year while giving our franchisees a business model they can trust. Efficiency in operations is one of the pillars of success in business and Tint World is leading the charge. Want to be a part of an efficient franchise system? See how Tint World can be your next great investment, visit https://lnkd.in/eSQjJiT3

BRIX Holdings recently signed four franchise deals for new Orange Leaf Frozen Yogurt and Smoothie Factory + Kitchen locations coming to Texas this year, including Prosper, Frisco, San Antonio, and the Rio Grande Valley!   Our CEO, Sherif Mityas, eagerly anticipates the growth of these brands: "We look forward to working with our new franchise owners, who are dedicated to expanding Orange Leaf and Smoothie Factory + Kitchen networks. Their commitment mirrors our enthusiasm for fostering business growth in our home state of Texas, a state rich with opportunities. There is exceptional potential here in Texas, and this is just the beginning of a promising journey, where we aim to nurture and elevate local entrepreneurial talent." Learn more about our upcoming expansion in Texas via Yahoo Finance: https://lnkd.in/eYNshCjn To learn more about franchising with the BRIX brands and the available franchise incentives, visit: Orange Leaf: https://lnkd.in/ejQysHh5 Smoothie Factory + Kitchen: https://lnkd.in/ecghbwhR Red Mango: https://lnkd.in/e6X8U6RW  #FranchiseOpportunities #Texas #SanAntonio #DFW #Expansion

Taking the Franchise realm by storm, Delight Restaurant Group, steered by the dynamic Krumholz duo, has made waves yet again with the acquisition of 65 Wendy's joints. A move that further solidifies their position among the most influential franchisees in the nation. In a business environment where many are cautious due to increased interest rates and valuation worries, it's quite profound how Delight Restaurant Group remains resolute in their pursuit for growth. Intriguingly, this continued trend of private equity (PE) acquisitions of multi-unit franchise operators is changing the dynamics of the franchising industry. These well-funded PE firms are now not only taking ownership of the franchisors but are also progressively acquiring franchisees, contributing to an evolution in the franchise landscape. With Delight Restaurant Group's latest acquisition, its bold portfolio now boasts 226 restaurants and an impressive $500 million in sales. Their strategic roadmap seems to be built on inorganic growth, clearly demonstrated by their history of successful acquisitions from both franchisors and fellow franchisees. This trend begs the question - how will the proliferation of large, well-funded players on both sides of the franchise equation impact the industry? While some may view this as a shift in power dynamics, others could be watching the creation of a new era of collaboration that might redefine how the franchise industry operates. One thing is for certain though, the franchise industry is heading for an interesting ride, and Delight Restaurant Group is seated firmly in the driver's seat. What are your thoughts on this evolving scenario? #franchise #franchising

The recent lawsuit against Restaurant Brands International (RBI) over its acquisition of Carrols Restaurant Group sheds light on the often-overlooked power imbalance in franchise relationships. The case of Burger King's parent company allegedly coercing its largest franchisee into a $1 billion sale exemplifies how franchisors can wield significant leverage through seemingly innocuous contract terms. The lawsuit, filed by a pension fund and shareholders, argues that RBI exploited its position as both franchisor and major shareholder to limit Carrols' growth prospects, effectively forcing the sale. This situation underscores a critical aspect of franchise agreements that many overlook: the franchisor's ability to control a franchisee's growth and operational decisions through remodel and renovation requirements. Carrols' impressive performance on Wall Street in 2023, driven by improved cash flow and Burger King's sales uptick, should have positioned it for expansion. However, RBI's insistence on prioritizing remodels over acquisitions effectively handcuffed the company's growth strategy. This demonstrates how franchisors can use renovation clauses to shape a franchisee's business trajectory, often at the expense of the franchisee's preferred growth plans. The lawsuit alleges that RBI's stance on remodels not only limited Carrols' expansion options but also depressed its potential sale value. This is a stark reminder of how seemingly standard update requirements can have far-reaching financial implications for franchisees, potentially impacting their exit strategies and overall business valuation. The rapid four-day negotiation of the $1 billion deal further highlights the pressure franchisees can face when a franchisor decides to exercise its influence. The lawsuit's claim of coercion, where shareholders felt compelled to accept an allegedly unfair deal or face limited growth prospects, illustrates the difficult positions franchisees can find themselves in when navigating franchisor demands. This case serves as a cautionary tale for franchisees and potential investors in franchise systems. It underscores the importance of thoroughly understanding not just the obvious terms of a franchise agreement, but also how clauses related to renovations, remodels, and operational standards can be leveraged by franchisors to exert control over franchisees' business decisions and financial futures. As the franchise industry continues to evolve, this lawsuit may prompt a reevaluation of the balance of power in franchisor-franchisee relationships, potentially leading to more scrutiny of how franchise agreements are structured and enforced. #franchise #franchising

For those of you considering #QSR #franchiseopportunities, you may not know yet that Subway was just acquired by the Roark Capital Group, based in Atlanta, GA. Roark is a private equity group which has become one of the biggest #multibrand franchisors with this $9.6 billion acquisition of 36,000 Subway #franchise units! But what does this mean for existing franchisees? It could be very advantageous according to today's FranchiseMatch.com article: https://lnkd.in/e_zSreZh

BurgerFi's Path to Bankruptcy As a franchise attorney who has been closely monitoring the wave of bankruptcies in the franchised restaurant space, BurgerFi International's Chapter 11 filing is unfortunately yet another example of a struggling system succumbing to market pressures and past missteps. BurgerFi's bankruptcy filing, listing assets between $50-100 million and liabilities of $100-500 million, exemplifies the financial strain many franchise systems are facing. Key Factors Leading to BurgerFi's Bankruptcy SPAC Merger Complications: BurgerFi's journey as a public company began with a SPAC merger in 2020. BurgerFi's repeated struggles with timely financial disclosures suggest inadequate preparation for public company obligations, a common issue in SPAC deals. Ambitious Multi-Brand Strategy: The acquisition of Anthony's Coal Fired Pizza in 2021 for $156.6 million exemplifies an aggressive growth strategy that likely strained financial resources. Managing multiple franchise systems under one umbrella introduces complexities in franchise agreements, disclosure requirements, and operational standards. Operational Challenges: Their CEOs admission of "legacy operational challenges" including declining same-store sales, high employee turnover, and a stale menu points to systemic issues that were not adequately addressed in franchise operations. This raises questions about the effectiveness of franchise support and training programs. Technological Missteps: The implementation and subsequent removal of the AI answering bot "Becky" at Anthony's locations highlights the risks of adopting new technologies without thorough vetting and franchisee buy-in. Franchising Struggles: Despite plans to grow both brands through franchising, BurgerFi struggled to expand its franchise network significantly. This suggests potential issues with the franchise offering or market positioning. Rapid Unit Closures: The closure of 41 units since 2023 raises concerns about site selection processes and the overall health of the franchise system. This level of closures often leads to disputes with landlords and franchisees, potentially resulting in litigation. BurgerFi's journey to bankruptcy serves as a stark reminder of the complexities involved in managing and growing franchise systems, especially in the volatile restaurant industry. It underscores the critical role of legal counsel in navigating growth strategies, operational changes, and financial restructuring. As the industry continues to face challenges, franchise systems must prioritize sustainable growth, operational excellence, and financial transparency to avoid similar fates. #franchise #franchising

Interesting article on the franchise M&A outlook for the second half of 2024 -- at least for those of us who find franchise and M&A trends interesting! While this might be true on a broader scale, we're still seeing M&A deals as a result of franchisors offloading underperforming units, seasoned franchisees looking to retire and sell off their options for additional territories, and a variety of other circumstances that exist regardless of interest rates and the market. With the PE interest franchise brands are getting right now, its hard to imagine franchise M&A will go anywhere in the coming years. https://lnkd.in/eMihjPSP

Does GYG buy back struggling franchise stores for $1? Franchisors, especially ones that list on the ASX, place importance on the value of their stores in the network. They publish average store setup or purchase prices and sell the dream of franchisees making a strong investment in the future. For years GYG have published information about the typical cost of a new restaurant. In 2020, it was between $700k and $1.1m to establish. But what happens when a franchisee runs into trouble with the business or wants out? Is the store still considered a million dollar franchise to the franchisor? According to a 2019 statutory liquidator report to creditors, GYG paid $1 to buy the Bakewell store back, which opened late in 2016. It was their first purpose built drive thru store in the Northern Territory. - See extract from report for further context. The liquidator also noted in the report issues around solvency shortly after the store began trading. We have also seen public records of other store buy backs at GYG for much less than the $700k to $1.1m establishment cost from 2020. Their annual report in June 2020 notes "On 13 August 2018, the consolidated entity acquired 12 Queensland franchised restaurants from various entities...for $3,021k" In our research, we have observed many franchisors buying or taking back struggling locations for $1 or a small fraction of the price incoming franchisees are paying. That same store is often back up for sale at full price or close to within weeks or months of the franchisor taking it back. The same failed location can be sold over and over again. When a franchisor does this, it is called churn. We have seen stores that have been churned 3 times to unsuspecting franchisees in a number of established franchise brands. * This post is not suggestion that GYG is churning. * Not financial or legal advice. #franchising #franchisee #GYG #asx #stocks #investing #fastfood #business #afr

With four franchise agreements signed for 21 locations in five states and another dozen or so restaurants in the final stages of construction, Freddy’s Frozen Custard & Steakburgers is closing in on another big growth year. Chief Development Officer Andrew Thengvall and his team at Freddy’s are focused on signing more franchise agreements and opening more restaurants to hit 800 units in the next few years (the Wichita, Kansas-based company already has 537 locations in 36 states.) Knowing which national tenants are aggressively growing their footprint is a crucial part of maximizing investment opportunities in retail real estate. National tenants such as Freddy’s are typical triple net lease tenants, which is a lease agreement on a property where the tenant pays all expenses, including real estate taxes, building insurance, maintenance, rent and utilities. Understanding which tenants to target for a net lease asset is vital for buyers and sellers of retail real estate. For more information on net lease assets and trends, go to NNN Trends, an available resource for continuously-updated cap rates, consumer traffic, and comparable sales for dozens of national tenants: https://bit.ly/3BvNl3i #franchise #restaurantnews #CRE #retail #netlease