Franchise roll ups

July 31, 2024

by a searcher from Columbia University - Columbia Business School in Washington, DC, USA

Is this a viable option? Please reach out if you have any experience buying and/or rolling up franchises, especially home/auto services. Negotiating a deal with one now. Thank you!!

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Reply by an investor
from New York University in New York, NY, USA

A lot of great comments above. I spent some time looking at franchise resale deals in home services. To add a few more comments: 1 - It’s helpful to speak with someone in Biz Dev / Corp Dev at the franchisor to take their pulse on roll-ups. As noted by others, any acquisition needs to be approved by the franchisor. Some franchisors are encouraging existing franchisees to expand by acquisition into other adjacent markets, or even into other states, while other franchisors prefer to keep a more distributed franchisee base. 2 - Look at the FDDs for the past few years and compare how the list of franchisees as evolved over time - you might spot some players that have been doing a rollup already. In particular, make sure you understand who the large franchisees are in your area as they could be the competition for resales. You can also identify how many new territories were awarded versus how many existing territories changed hands. 3 - Consider your geographical strategy very carefully. Are you looking to roll-up adjacent territories, or at least territories within the same group of counties? Are you looking to generate any synergies or just accumulate scale? As someone else mentioned, you are locking yourself into one franchise network so you need to make sure there will be targets available. 4 - If possible, your first acquisition should be multi-unit rather than single unit. Finding add-ons is not easy so make sure you start with something you will be happy with rather than something very small. 5 - Your roll-up doesn’t need to be just acquisitions - if there are empty territories, you can acquire new franchise locations in those. I know this might be looked at as more of a “start-up” model, but if you start with a solid platform acquisition, then expanding into new territories should be feasible. 6 - Many (most) of the best resale opportunities will be snapped up by others franchisees already in the network. The franchisees all attend the national conferences, and the multi-unit franchisees looking to acquire others are always in the know. A lot of the resale opportunities I saw were available to outsiders for a reason - too many warts. 7 - Definitely speak with a lot of current franchisees during your diligence, as they can give you guidance on both the franchisor as well as what they are seeing in the franchisee network. 8 - Most of my points are related to one general theme - you can roll-up by expanding within ONE franchise network, by acquisition of either an existing franchisee or a new territory, so you really need to study the landscape carefully and make sure the opportunity is there. Happy to chat if it would be helpful.

Reply by a searcher
from Harvard University in Denver, CO, USA

My primary advice is to read the FDDs very, very carefully and really talk to the other franchise owners (they have to provide you a full list and you're best to reach out to many of them.) Franchisors have ALL the power in the relationship, meaning they can make or break your economics depending on the terms of the FDD and their motivations. Generally they want franchisees to be happy if they're still selling lots of franchises, but as they get larger / more saturated, then they start looking toward their share of the pie more. Their share of the pie is typically 100% dependent upon 1) revenue and 2) any products you're required to buy from them. Note that neither of those include your profitability... Subway and Dickey's are great examples of what happens when franchisors start caring about their share of your revenue more than new franchise sales/growth (which require franchisee happiness). That said, franchises have created a ton of wealth for operators, especially those that can figure out how to aggregate a large number of them and run them nimbly. Proven business model should make financing pretty straightforward, which is another plus.

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