We’ve all seen the shift happening over the past decade: Franchise groups are growing – and M&A activity is increasing. Larger franchisees buying up smaller franchise groups and “mom-and-pop” franchisees; private equity firms buying some of the largest franchise groups in the nation.
The ‘big fish’ keeps getting bigger – and these large franchisees are buying and selling hundreds of units at a time. The next decade will be defined by these monster deals, yet very few companies have experience navigating the cascade of legal, financial and real estate contracts required to bring such a sizeable transaction to a successful close in a timely manner.
So, what do organizations considering a large M&A need to know to help their transaction be as successful as possible? Here are four key insights gleaned through recent real-world experience with one such monster deal: assisting a franchise group in the southwestern U.S. in the sale of all of its 850-plus units spread across three major quick-service restaurant (QSR) brands.
Experience helps. Depth is critical
Most organizations will turn to their current legal counsel for guidance navigating a monster deal. But it’s important to know that a deal involving hundreds of units is not simply a scaled-up version of a smaller transaction. As the size of the deal grows, its complexities increase and the likelihood of obscure issues grows, too. If you’re considering a large franchise deal, it’s worth taking the time to seek out a firm with familiarity and experience with multi-unit transactions.
This direct experience can significantly smooth out complexities, anticipate issues and avert unexpected snags. Moreover, a larger deal still requires the same level of attention to every small detail – and those details cover a much broader range of issues. So, it is just as critical to work with a firm that has direct experience as it is to retain a firm with a deep and broach bench.
Expertise in M&A is clearly a must, but real estate and leasing specialists are also critical to this type of transaction.
You need an investment banking partner, too
An experienced law firm is a tremendous asset in closing a monster deal, but there’s no replacing the expertise of an investment banking partner.
Hard numbers are hard numbers, but an experienced investment banking partner knows how to help you present your business and its financial information in the most positive light.
Finding the right investment banking partner helps you attract the best buyers and the best price – then your law firm develops and manages all of the critical documents, and ultimately closes the deal.
Maintain solid and complete records
One of the most daunting parts of buying or selling hundreds of units is reviewing hundreds of existing leases with landlords. There’s no getting around the enormity of this task. But it’s exponentially more difficult if you’re not starting with complete, accurate records, and your partners have to hunt down or recreate much of this information.
Any organization considering a large transaction would be wise to start compiling, reviewing and organizing records – and patching any holes – so a small detail doesn’t turn into a major roadblock at crunch time.
Execution is the hard part
One thing veterans of the M&A world know is that getting an offer isn’t the hard part – it’s all about closing the deal. Even small transactions can easily be derailed by unexpected issues; the likelihood for surprises and challenges grows with the size of the deal.
Above all, all parties involved – sellers, buyers and their legal and financial partners – should start with the right expectations. It’s going to be a lot of work. Surprises are a given. Difficulty is inevitable. But none of that should scare you off. And it certainly won’t scare off experienced law firms and investment banking partners.
These monster deals are still rare – and each one presents unique issues – but experienced partners will be able to anticipate and address issues effectively and efficiently, to keep the deal on track and ultimately drive a successful close.
Keys to closing a monster deal
- Seek out legal counsel with direct experience with the complexities of large, multi-unit deals
- Choose an experienced investment banking partner to help attract the right buyer and the best price
- Proactively review and organize leases and other documents to avoid roadblocks later on
- Expect difficulty and don’t let obstacles automatically derail the deal
The authors
Timothy Barnett and Ryan Schildkraut are shareholding partners at Winthrop & Weinstine, and in 2021 assisted a franchise group in the southwestern U.S. in the sale of all of its 850-plus units spread across three major quick-service restaurant (QSR) brands
