Experiences acquiring a franchise just to leave franchise?

February 22, 2025

by a searcher from Duke University - The Fuqua School of Business in Portland, ME, USA

Currently looking at the acquisition of a business that has been operating as a Neighborly franchise for 20+ years.

Contemplating a scenario in which the Seller would terminate the Franchise Agreement and sell assets to me, I would rebrand under my own independent brand and integrate the operation into my own.

I see some risks and issues to navigate, customer retention/loss, loss of preferred vendor terms through Neighborly, etc but there is a good complementarity with my current business and nearly $200K in franchise royalties that would drop to the SDE line.

Wondering if anyone has experiences acquiring a franchise just to leave franchise, or advice? Thanks in advance.

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Reply by a professional
from University of Akron in Charlotte, NC, USA

I wouldn't buy a franchise and then shut it down. You would be paying full price for a business and then throwing away the goodwill and intangibles. Thus, you would be overpaying for what you are buying. In addition, you'd probably face contractual restrictions from the franchisor. Furthermore, you will probably need to get franchisor approval and pay them a fee. So you're overpaying and paying an additional fee too. Plus, you would most likely bring a lot of scrutiny on yourself from the franchisor as well.

Just doesn't seem like a very good plan given all the negatives. Not really sure why this would be done. Maybe there is some reason that makes sense, but it would have to be pretty far out of the norm. For me, this would be a strict FFE purchase. Just buy the equipment/fixed assets and that's it. Avoid everything else.

I have taken over a location of a former franchise. It has advantages if you offer the same product/service of the franchise. People still remember it. Still come there. Depending on your branding, people might even assume it's another franchise which just makes it more appealing.

Reply by a searcher
from Drexel University in Long Island, New York, USA

I’ve previously given a lot of consideration to this - not necessarily as a strategy in itself, but, at least, as a safety net should things go awry with the franchisor.
And awry doesn’t have to mean a total mess; it could be just that they’re no longer providing nearly enough value to justify the significant royalties they are collecting.

I’ve previously thought it to be a potentially viable option, presuming there’s some stickiness to the business, and loyalty to the business (and not the brand!).

One concern that’s coming to mind, I didn’t previously give much consideration to: the franchisor can resell the territory that you’ve just vacated and in x months, there could be a brand new operator, up and running with your previous name that you just gave up. That prospect is a little distressing. Perhaps, a lot distressing.

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