Franchise M&A in 2024: Trends and Insights for Investors

Mergers and acquisitions are a hot topic in franchising in 2024. According to data collected by Boston Consulting Group, companies had disclosed approximately 21,500 M&A franchisor deals year-to-date as of August 2023, with a cumulative value over $1 trillion. In 2024, this could increase.

All that means is that loads of businesses are choosing to combine with other businesses to become one entity. But why? What are the trends driving franchise M&A?

Small businesses are becoming less and less prominent in our modern world and this carries over to franchising. Some markets are so saturated that new concepts find themselves struggling to be seen. Big franchisors are gobbling up smaller ones to make themselves even bigger. Small concepts are up against fierce industry giants and, sometimes, it just makes sense for both businesses to simply combine their efforts; the giant expands and the little guy doesn’t go out of business.

Technology is ramping up faster than anyone could have imagined, especially in the world of franchising and business ownership. As AI and automation are skyrocketing in demand within virtually every industry, franchisors are snapping up tech startups in M&A deals as fast as they can in an attempt to stay ahead of the curve.

Consumers’ tastes are changing and diversifying is one of the best ways to make sure consumers' needs are being met in one way or another. This is especially true for concepts that widen their product or service range within their industry or niche. Multi-brand franchisor platforms are actively pursuing acquisitions to diversify their service offerings. For example, a home service franchise that offers window cleaning might seek an M&A deal with a franchise that offers roofing services to offer consumers more of a one-stop-shop for all their home improvement needs.

Private equity firms that are looking for ways to diversify their portfolios are doing so through M&A deals. Also, as a way around labor shortages, private equity firms are putting their trust in companies that already have skilled individuals working for them, so merging or acquiring a franchise is a suitable solution.

Globalization is making a big impact on franchising, with brands wanting to expand across international borders and beat their competitors in reaching these new markets. But breaking into new markets is tough so, instead of going it alone, they're buying up local brands or teaming up with locals who know the culture and region well.

Franchisors tend to perform fairly well, even during low economic growth periods, due to franchisee-paid royalties, relatively low initial investment costs and tried-and-tested business models. For these reasons, franchises are an attractive option for investors. From the perspective of a franchisor, M&A has emerged as a prominent strategy for brands seeking market expansion or a competitive advantage.