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Legal Eagles talk big trends in 2020



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What are you watching in 2020, and how are you approaching it?

Nancy Lanard

Nancy Lanard

"There are companies that are starting to sell franchises even though they are not proven systems and have no financial backing behind them. I have recently looked at several new franchise systems that have one location for their brand and thereby are not systems that have proven that the concept is truly ‘franchisable’ and a model that can work beyond the one location. Additionally, these same franchises are completely underfunded as a franchise company, with balance sheets showing as little as $1,000. How can these franchise companies expect to have a franchisee invest hundreds of thousands of dollars in their brand when they have not? This is a serious issue. In these instances, I try to talk the client into walking away from that brand and to going back to looking at others.”

—Nancy Lanard, Lanard and Associates

"The ever-increasing appetite for international expansion—earlier on in the lifecycle of franchise systems and beyond traditional borders—is one of the biggest trends for 2020. This requires franchise lawyers to have broader understanding of the widening regulatory regimes across the globe, together with a firm grasp on issues that are pertinent to structuring and implementing international transactions.”

—Andrae Marrocco, McMillan LLP

"Continued emphasis on Item 19 by state regulators. Regulators continue to push deeper into the 2018 FPR (financial performance representation) Commentary and beyond. Maintaining meaningful relationships with state examiners and consulting them often is key.”

—Dan Matthews, Drumm Law

"The biggest trend is the impact of FASB’s new revenue recognition rules on emerging franchisors. We are working carefully with our franchisor clients to make sure their systems are structured to minimize fee deferral.”

—Ritchie Taylor, Manning, Fulton & Skinner

Tal Grinblat

Tal Grinblat

"The impact of California’s AB-5 on franchising. Specifically, whether California’s new law on classification of independent contractors may lead to increased employment-related claims against franchisors, both from franchisees and franchisee employees. We are reviewing and revamping franchise agreements to include stronger independent contractor acknowledgements, requiring franchisees to enter into agreements as an entity they own and control rather than individually, looking into insurance to help manage franchisors’ risks, and looking into lobbying efforts to help exempt franchisors from the law.”

—Tal Grinblat, Lewitt Hackman

"The sale of franchisors, typically to private equity firms. Because of the financial models used by the PE firms, what were once very strong financials of the franchisor become very weak. It makes solid systems needing to deal with financial assurance obligations imposed by the states, as well as making it difficult for the franchisor to meet banking requirements.

We have to live with the results. We try to explain to the states what has happened. We also try to explain to the PE firms what they are doing.”

—Douglas Ferguson, Robinson Waters & O’Dorisio

Tom Spadea

Tom Spadea

"With the economy staying strong, many franchisors are struggling to get deals over the finish line. In a counter-intuitive trend, franchise fees have actually risen as more and more franchisors depend on the broker community to do deals and a commissions arms race of sorts has begun.  Our advice to our franchisors is to continue to play the long game and put most of their focus on franchisee unit economics. If their franchisees make money and are happy, they will surely continue to grow. And it’s OK to pay out big commissions if necessary, as long as you have the cash flow and capital to support your franchisees. In the end, franchisors are not in the franchise fee game, they are in the royalty game.”

—Tom Spadea, Spadea Lignana

"The biggest trend I have observed has been the increasing number of bankruptcies, by both franchisors and franchisees.”

—Kevin Shelley, Kaufmann Gildin & Robbins


CONTENTS: Legal EaglesComing SoonHot TopicsAgreement Advice
Fledgling EaglesExit TimeSeasoned ExpertM&A Trends

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