Franchise Group Files for Bankruptcy

The parent company of five franchise brands, including Vitamin Shoppe and Pet Supplies Plus, has filed for bankruptcy. Franchise Group, which says it “help[s] catapult franchise brands forward,” was taken private about a year ago with a $2.8 billion acquisition. According to Bloomberg, it listed nearly $2 billion in debt in its Chapter 11 court filings.

All of this comes amidst growing concerns regarding Franchise Group’s former CEO, Brian Kahn, and his alleged involvement in a collapsed hedge fund.

Franchise Group closed the first quarter with a 12% revenue decrease across all its brands — a clear indication of the instability that exists in the traditional retail market.

“The company will still market its business in Chapter 11 to ensure its assets are sold for as much as possible,” Bloomberg reported. “As part of the restructuring, [Franchise Group] said it has decided to wind down discount retailer American Freight and will commence store closing sales on Nov. 5.”

Vitamin Shoppe and Pet Supplies Plus will remain largely unaffected, at least for now.

As private equity continues to play an important role in the franchise world, this sequence of events illustrates just how important strategic partnerships are for all involved. While B. Riley Financial — which backs Franchise Group — intends to return to growth in the foreseeable future, the current dissolution of the investment — and the professional and financial stability of countless entrepreneurs and team members involved — demonstrates the value in carefully evaluating the investment opportunity, existing debt and market circumstances surrounding a potential acquisition.