There Aren't Enough Franchise Deals
Investment bankers are hunkering down trying to find deals, said Burt Yarkin, managing director of The McLean Group, a firm that provides M&A, business valuation and other financial and strategic services to middle-market businesses. "The investment banker's challenge is there aren't enough good deals. There's just not enough good properties out there."
Right now we are in a world where capital is screaming for a place to find a home, and middle-market businesses are looking to diversify by buying their competitors, synergistic concepts or more franchise locations. But that being the case, it doesn't mean that just any ol' company will be an M&A or private equity target. Let's face it, said Yarkin, it's hard for smaller companies to attract enough interest from the PE community—your company should be above $5.0 million to $10 million EBITDA—and a lot of businesses are still climbing out of the hole from the affects of the recession.
Yarkin, who is currently tracking 250 private equity firms looking at the franchise sector, gives this advice to franchise businesses looking to buy, sell or field a PE investment:
• "Build your business big enough, and there will be plenty of people willing to support it," he said. Have a vision for the business, and "look for things you can scale. Make it big enough that the investment community can invest in it and take it to the next level."
• Make sure your business has the unit economics. "Franchisees have to make money," he said. Although we've all heard that before, it's surprising how many franchise concepts aren't concerned enough about it.
• Have a concept that his highly differentiated in the marketplace, he said.
"I think it's still the early days of franchising," Yarkin said. "Some of the categories are tired and have been around for a long time, but there are plenty of new concepts coming down the road. That's believing in the future."