--- title: "PE Buys Into Franchising: From unicorns to warhorses, M&A is on the rise" url: https://burnaze.com/article/a7e11504-db53-40ff-9a5d-d5e8a19ddb48 source: "Franchising.com" original_url: https://www.franchising.com/articles/pe_buys_into_franchising_from_unicorns_to_warhorses_ma_is_on_the_rise.html author: "Ritwik Donde and Darrell Johnson" category: "Franchisors" industry: "Franchise Industry" segment: "Franchisors" topics: ["Finance & M&A"] published: 2020-01-16T10:00:00.000Z modified: 2026-11-01T04:11:07.481Z image: https://imgs.franchising.com/art/articles/5221_plate.jpg --- # PE Buys Into Franchising: From unicorns to warhorses, M&A is on the rise **TL;DR:** Private equity funds are investing heavily in franchising, with over $600 billion of capital invested into buyout funds in the past 3 years. *By Ritwik Donde and Darrell Johnson, originally published in Franchising.com on 2020-01-16. [Read the original](https://www.franchising.com/articles/pe_buys_into_franchising_from_unicorns_to_warhorses_ma_is_on_the_rise.html).* ## Key facts - $2 trillion in PE dry powder - 87,488 franchised businesses involved in PE-led M&A - 83% of acquired brands franchising for 10+ years ## Story ## Private equity growth Private equity (PE) funds awash in capital face a growing need to put large amounts of money to work. Despite the strong pace of investment since 2014, PE dry powder, or uncalled capital, has been on the rise since 2012 and hit a record high of $2 trillion in December 2018 across all fund types. Across all transactions and industries (franchise or otherwise), 4,754 deals worth $849. 7 billion closed in the first half of 2019. In the past 3 years, more than $600 billion of capital has been invested into buyout funds. The number of U. S.-based sponsor-backed companies has grown by 5.3 percent CAGR over the past decade. ## Franchising trends More than three-quarters of M&A executives at large private companies, and close to 87% of M&A leaders at domestic PE companies, expected to close a larger number of deals in 2019 than in previous years. In recent years, PE in franchising has increased significantly. Our research services have been used by a growing number of PE firms as they seek to gain market insights to find brands (often in earlier stages of development), for due diligence information during the bidding process, and for business intelligence for strategic change following an acquisition. Our research indicates that the number of franchise brands acquired by PE firms rose from 24 in 2012 to 60 in 2018. Over the same period, 87,488 franchised businesses were involved in PE-led M&A transactions. Year Franchise brands acquired by PE firms Franchised units involved in PE transactions 2012 24 15,404 2013 15 4,895 2014 29 15,300 2015 48 5,944 2016 35 14,003 2017 57 10,956 2018 60 20,986 Total 268 87,488 From unicorns to warhorses Until early 2018, many PE firms targeted smaller, non-franchised “unicorn” chains with an eye toward consolidating them into their existing portfolio and franchising the concept at a later stage. Take the case of Fuzz Wax Bar, a Canadian concept with little presence. In 2018, Clear Summit Group (whose brands include Tutor Doctor and WSI) acquired a partial interest in the company intending to franchise the brand in the U.S. and beyond. In a crowded franchise space, which adds close to 350 new brands each year, it can be difficult for PE investors and their partners to spot unicorns with the best market potential. The period since early 2018 has been one for “old warhorses.” ## Legacy brand acquisitions In 2017, the number of brands franchising for 10 years or more acquired by PE firms was about 64%. That rose to 69% in 2018 and 83% as of Q3 2019. Examples of Legacy Brand Acquisitions by PE Firms (as of Q3 2019) Brand PE Firm Started Franchising Years in Franchising Servpro Blackstone Group 1969 50 Intelligent Office Incline Equity Partners 1999 20 Jenny Craig HIG Capital 1985 34 Hooters Nord Bay, TriArtisan 1986 33 Budget Blinds JM Family Enterprises 1994 25 Perkins Elysium Management 1964 55 Abra Auto Body & Glass Roark Capital Group 1987 55 Jimmy John’s Roark Capital Group 1993 26 Franchisees, too! It’s not just franchisors that are popular among PE companies. We are increasingly being asked by PE and hedge fund managers to assess large single-brand and multi-brand operators. Below are a few examples of big ticket franchisee deals in the past few years: Argonne Capital Group has invested close to $530 million in various franchises, including the sole master franchisor for IHOP in Florida, and two franchisees in the system with operations in Texas and seven Western states. Bandon Holdings, one of the biggest franchisees in the Anytime Fitness system, received a majority investment from the PE firm Fireman Capital Partners to help fuel its growth. Health care real estate investment firm InvestSouth acquired in-home and hospice care provider Interim HealthCare of Greenville. Chalak Growth Capital Fund acquired KFC/Taco Bell units in the Northeast. This transaction included 78 KFC units, 39 KFC/Taco Bell co-branded units, and 3 KFC/Long John Silver’s co-branded units. NPC International, one of the largest Pizza Hut franchisees, was acquired for $190 million by Olympus Partners. Conclusion Franchisees have gained the attention of PE firms attracted by the proven business concept, the potential for organic and rapid growth or an expansion (given the rise in resale activity among franchisees), together with the goodwill and strength of an established brand that franchise systems can provide. We do not see this trend slowing anytime soon. ***Ritwik Donde** is a senior research analyst at FRANdata. **Darrell Johnson** is CEO of FRANdata, an independent research company supplying information and analysis for the franchising sector since 1989. ## Entities - Franchising.com (publication) --- Originally reported by Ritwik Donde and Darrell Johnson, Franchising.com (https://www.franchising.com/articles/pe_buys_into_franchising_from_unicorns_to_warhorses_ma_is_on_the_rise.html). Summarized by Burnaze (https://burnaze.com/article/a7e11504-db53-40ff-9a5d-d5e8a19ddb48).