Carvel Franchise acquisition

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March 30, 2021

by a searcher from Columbia University - Columbia Business School in Princeton, NJ, USA

Hi, has anyone acquired a Carvel franchise and have any comments or knowledge on the economics of this business? Is it worth acquiring franchises in general? Would be great to connect and learn about fees and initial investment and comparables.

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Reply by a searcher
from Columbia University in Jacksonville, FL, USA
I'm non-anonymous from Columbia. I currently own a franchise, am looking at a second franchise location, come from a family with 65 franchises (25 acquisitions I helped model and price), have an offer to buy 2 hotel franchises, and am about to make an offer on 4 coffee franchises. I have a friend that wants me to do a startup in tangential space serving franchises. I know franchise consultants and franchise investment bankers. I went deep sea fishing in Australia with the long-time CEO of the world's largest franchise. I can name at least 2 individuals that have made Billion dollar revenue companies in franchising using a model similar to a search fund (syndicated capital from PE, HNW investors). I hold the dubious honor of knowing franchises. I can tell you the pros and cons of franchising. Just remember if you syndicate capital and buy a franchise business, you may have several parties telling you what to do in one form or another. But, as Bob Dylan said, 'You Gotta Serve Somebody'.

Sorry for the diatribe. Echo Tom Hegge's sentiment. You want great unit economics in the Item 19 of the FDD. It also has to list by law how many units were developed and/or closed. I would also call Franchisees and see if they are happy, Call suppliers and try to get your hands on some actual P&L's from the franchisees. Often the buildout costs in the Item 19 vary widely. Make sure there is a sufficient sample size and brand equity in the franchise. Make sure that the Franchisees have a strong committee have a strong representative committee if the Franchisor pushes back on too many remodels or CapEx with a poor ROI. A good franchise system is equally dependent on the Franchisor, the Franchisees, and the Suppliers.
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Reply by a searcher
from Harvard University in Atlantic Beach, FL, USA
As Adam said, the FDD is the first stop for unit economics. The State of Wisconsin has any franchise with a current registration in the state available online:

https://www.wdfi.org/apps/FranchiseSearch/MainSearch.aspx

A few thoughts for what it's worth on Carvel from a quick glance at the FDD: they don't give any unit economic info (Item###-###-#### not definitively bad, but most franchisors would want to show great economics if they had them to show. ~230 of 311 total locations are in NY / NJ - if you're looking outside of the NY metro area, I'd be wary. As always, talk to as many franchisees as possible, get their P&Ls if they'll give them to you, and for this one in particular, realize that performance in their home region will not translate to other parts of the country.
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