BIG MONEY IN FRANCHISING

Scaling Your Enterprise in the Era of Private Equity

by Alicia Miller

Pub Date: March 12th, 2024
ISBN: 9781773272375
Publisher: Figure 1 Publishing

With this financial guide, Miller demystifies the role of private equity in franchise-structured businesses.

Once a gold mine for the small businessperson, the world of franchising (the family-run 7- Eleven; a mom-and-pop-owned Dairy Queen) is quickly becoming dominated by private equity, both for the franchisor and franchisee. (Private equity interest in franchising was likely inevitable, given the franchising model’s profitability and predictability.) Such investment has become increasingly common ever since Bain Capital’s highly lucrative buyout of Domino’s Pizza in 1998. The resources PE has at its disposal make it an attractive partner for brands looking to launch, sell, or expand, and over half of all franchise outlets in the United States belong to brands that have partnered with private capital. Whether welcome or not, the change has arrived, and the author (the managing director of the Emergent Growth Advisors strategic advisory firm) argues that those who derive their income from the franchising model—or hope to—would do well to familiarize themselves with the inner workings of private equity. “I wrote this book primarily to help franchise founders and current franchisees understand the tremendous influence private equity now has across our sector so you can make smarter wealth-planning and partnership choices,” writes Miller in her introduction. According to the author, private equity, like franchising, is highly systems-based, which makes comprehending and anticipating the PE playbook fairly easy. Miller offers a history of private equity’s role in franchising, from early forays into the pizza business to the rise of family offices (FOs) that pool the wealth of families and invest on their behalf. She then describes the various strategies private equity uses to accelerate growth, maximize compensation, and achieve other goals related to its investment. Miller also outlines the “Profit Ladder” (offering advice on how to move up it), analyzes how PE can end up destroying the value of franchises, and speculates where the future of franchising may be headed.

The author writes with economy and authority. Her prose is precise but not overly technical, allowing readers without business degrees to follow along: “After franchising efforts have begun, there isn’t much time for ‘experimentation’ with the hope that a concept will stick and resonate with the market. The smartest concepts launch well capitalized with strong corporate unit-level performance and a well-honed operating model already under their belt.” She remains ambivalent about the power of private equity in the franchising sector, pointing out its negative impacts while revealing the ways in which it can potentially benefit the shrewd and the informed. Miller includes frequent real-world case studies, including Jenny Craig and Wetzel’s Pretzels, to illustrate her arguments. The book is aimed at those who are already involved in franchising in some capacity, and these readers will likely come away with a much greater understanding of their industry—but anyone looking to enter the market, particularly those hoping to design a franchisable business, would greatly benefit from understanding how PE operates from the getgo. Miller brings her professional experience to bear on the material and does so in a way that makes a potentially overwhelming topic seem far more approachable.

A comprehensive and cleareyed look at private equity in franchising.