Insider Advice on Selling a Multi-Unit Business or Franchise

About the Episode

Attorney and franchise specialist John Berg joins us to talk about multi-unit businesses and franchises. John guides franchisees and independent business owners through their strategic planning and daily operational issues. He shares his insights with us about financing sources, complex transaction demands, succession and transition planning for owners of multi-unit businesses, and the unique legal aspects of managing a franchise or multi-unit business. We also look at the challenge posed by managing rising labor costs in the multi-unit restaurant industry. If you are involved with a franchise or want to be, then this discussion is for you.

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In this Episode

3:20 What is a multi-unit business or franchise?
3:55 What types of buyers purchase multi-unit businesses?
5:15 EBITDA multiples for multi-unit businesses
6:20 What are private equity firms’ holding periods when they purchase a multi-unit business?
6:20 Private equity firm hurdle rates (minimum required rate of return)
7:30 Capital structure improvements for multi-unit businesses
8:20 Examples of multi-unit franchises
9:15 Scalability and margins of multi-unit businesses
11:00 Overview of general and administrative (G&A) expenses
11:45 Do venture capitalists invest in new multi-unit concepts?
12:40 Geographic considerations for multi-unit businesses
13:00 Scalability or profitability of multi-unit franchises
14:00 The value of talking to other franchisees in the system (a.k.a. “validation”)
14:30 Corporate units vs. franchisee-operated units
15:30 Multiples for franchisors vs. franchisees
18:15 How important is franchisee profitability to long-term franchisor success?
20:10 Franchise Disclosure Document (FDD) — Item 20 — Outlets and Franchisee Information
21:30 Overall consumer preferences and market dynamics and their effect on market valuation
24:30 The corporate vs. franchisor decision to grow
27:00 Is geographic concentration important for franchisors?
28:50 Success rates of independent businesses vs. multi-unit or franchised businesses
30:30 The impact of minimum wages on the franchised business model
33:00 Typical costs for multi-unit franchises
34:25 How important are operating metrics to buyers if EBITDA is still strong?
35:45 Common EBITDA multiples for multi-unit businesses based on size and type — and the impact of predictability on EBITDA multiples
37:50 Who purchases franchisor business models?
38:20 Which are the most highly desired multi-unit franchises?
39:45 What is a business combination?
41:15 How often do private individuals vs. private equity firms invest in multi-unit franchises?
41:50 I have between $10 million and $20 million to invest — should I consider investing in a multi-unit business or franchise?
43:50 Are there rules of thumb for minimum EBITDA per unit?
45:00 What are the characteristics of a good multi-unit business?
48:30 Minimum revenue requirements per unit
51:00 What are the most common legal issues in multi-unit M&A?
53:00 Single vs. separate franchise agreements
53:50 Do most multi-unit business owners prefer to own the real estate?
55:05 How negotiable are franchise agreements?
56:30 What are the most contentious issues in a franchise agreement?
58:25 How much influence do franchise groups have over the franchisor?
59:30 How does litigation affect a franchisor’s ability to sell new units?
1:03:25 What is a workout?
1:05:20 Who are the most difficult parties to negotiate with in a workout?

Learn More About This Episode

Meet Our Guest

John Berg

John Berg

Attorney at Monroe Moxness Berg Law Firm

John Berg is a shareholder at the law firm of Monroe Moxness Berg and counsels buyers and sellers on effectively structuring and documenting transactions involving business combinations, purchases and sales, and financing. John also leads the firm’s Multi-Unit Succession and Transition (MUST®) group, working with multi-unit retail business owners to help them solve the unique legal challenges in structuring their exit plans.

John works closely with franchisors, lenders, and vendors and is a frequent speaker on exit planning, taxes, and mergers and acquisitions at industry conferences and seminars. He has been honored by Franchise Times as one of franchising’s top 125 “Legal Eagles” (2004-2021), selected as a “Minnesota Super Lawyer” (2006-2021), and nominated to “Who’s Who Legal: Franchise 2020.”

Location Location: Minneapolis, Minnesota

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