M&A Trends and Franchising

By Generational Equity

06/21/2022

Recently David Fergusson, Executive Managing Director, M&A-Technology Practice Leader here at Generational wrote a fantastic article on franchising and trends impacting the sale of franchise locations.

Entitled “What the M&A Super Cycle Means for the Future of Franchising”, it provides tremendous insight based on David’s decades of experience in the investment banking arena. I thought I would share a few excerpts from the piece since it captures critical points for considering your eventual exit, especially if you are a franchisee.

M&A has always been cyclical, but the environment right now is beyond anything we’ve seen before. That’s because of the long-anticipated ‘M&A super cycle,’ fueled by the retirement of the baby-boomer generation. So, as baby boomers sell their beloved businesses, we are seeing the beginning of what promises to be trillions of aggregate deal values and liquid wealth transfer from the M&A industry.

We have been talking about the M&A super cycle for years as we have been anticipating a huge migration of baby boomer business owners retiring over the next few years.

Technically the baby boom was 1946-1964. So, the tail end of this group is now entering their 60s and needs to come up with a retirement plan that works, which will include some form of a documented exit plan.

But the key is “planning” which unfortunately far too few baby boomer business owners have done. This is how Fergusson describes the need for preparation:

The biggest problem with companies whose exit strategy is a sale is that they simply aren’t prepared for it. And there’s no way around it: the preparation takes time. The average transaction takes over a year; just getting the documentation together can take two to three months, and without extensive documentation, you won’t get the best deal – or any deal at all. So, you’ll have to start preparing two to three years out from a target sale date.
 

We often tell business owners that your exit is not an event, it is a journey, one that must be navigated carefully and skillfully to help you obtain an optimal deal for your business (whether it is a franchise or not).

Odds are good that unless you have sold several businesses in your career, you will need the guidance of a skilled M&A advisory firm, one that is experienced and successful in closing deals for years and years (like Generational I might add).

But if you have to go alone, David provides some great step-by-step advice at the end of his piece:

1. Have a plan.
   You should have a strategic growth plan that is written down so that your whole team is familiar with it, and on board with it

2. Build a culture.
   You need strong core values while still remaining flexible and open to change

3. Assemble a leadership team.
   Buyers won’t like a company that relies too heavily on the owner. Invest in a reliable team who steps up after a sale

4. Reward success.
   Figure out what matters most to you, let your team know how you’re measuring it, and reward on it

5. Seize momentum.
   Recognize momentum when you have it and ride the wave. If you don’t have any, make finding momentum a priority.

This is tremendous guidance from an experienced dealmaker.

If you follow it, you will have a much better chance of success at the end of your exit journey. Of all of these, number three is usually the biggest challenge for many successful entrepreneurs. Most likely you have built a very profitable business over the years based largely on the sweat equity you and your family have put into the operation.

But at some point, it becomes vital to delegate key decisions to your core middle management team so that they begin to develop the ability to run the business under new ownership once you move on. Do not delay on number three!

Buyers avoid risk and one of the riskiest scenarios is a business that relies on the owner for all key decisions. That will not only dampen the valuation of your company, but it may also make it hard to find a buyer at all.

So, we thank David Fergusson for his tremendous insight into franchising M&A. If you would like to read the entire piece you can do so using this link.

To gain even more knowledge on effective exit planning, you should set aside some time and attend a Generational Growth and Exit Strategy Conference.

We hold these throughout North America and by attending you will be much more prepared for an optimal exit than before. To learn more, please contact us and we can discuss your specific situation.

Carl Doerksen is the Director of Corporate Development at Generational Equity.

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