Mergers & Acquisitions

Resources: M&A Talk Podcast

At M&A Talk we bring you exclusive interviews with experts in business sales, valuations, mergers and acquisitions and more. We talk to the most experienced professionals in the industry to uncover their secrets.

John Berg on Multi-Unit Business/Franchise M&A

John Berg on Multi-Unit Business/Franchise M&A

John Berg

Attorney | Monroe Moxness Berg Law Firm | M&A | Succession Planning | Workout | Income Tax

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 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.”

Guest Profile

A shareholder at the law firm of Monroe Moxness Berg, John Berg 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 has earned his clients’ trust as a business advisor because he approaches their legal issues with a nuanced understanding of a business owner’s objectives and a comprehensive knowledge of financing sources and techniques a complex transaction demands.

He assists a number of franchisees and independent business owners with their strategic planning and daily operational issues. For these clients, he serves essentially as outsourced general counsel.

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.”

Company: Monroe Moxness Berg Law Firm

Location: Minneapolis, Minnesota

LinkedIn: https://www.linkedin.com/in/johnbergtaxattorney/

Website: http://www.mmblawfirm.com/

Email: jberg@mmblawfirm.com

Phone: (952) 885-5965


Topics Covered

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

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