The M&A Bonanza Continues

June 15th, 2018 by Ritwik Donde

The M&A story in the franchise world continues to roll on as we head into mid-2018. FRANdata identified 14 major transactions that took place in 2018, up to June. While 2017 was marked by private equity interest in mid-to-small sized franchises, the trend for this year marks the beginning of private exits from legacy franchise systems. This trend is likely to continue in the year ahead as private equity PE sponsors focus on their portfolio companies in order to get ready for exits in a period of high valuations.[1] A report by Ernst and Young suggests that PE firms announced 226 exits, valued at $57 billion in Q1-2018 alone.[2]

FRANdata’s internal analysis showed that 55 brands received investments from private equity investors in 2017 – up from 35 brands in 2016. In the year thus far, i.e. Q1-2018, 24 brands have gotten acquired by PE investors, mostly boosted by the acquisition of the Dwyer Group.

One of the biggest deals this year was the acquisition of multi-brand franchisor, Dwyer Group, by Harvest Partners.[3] This transaction means Harvest Partners is now a company that has over 3,200 franchisees operating in the United States and eight other countries, sold by by The Riverside Company. BBVA Compass in a report noted that an average private equity group seeks to make approximately a 20% equity return on their larger investments. Larger private equity firms, such as The Riverside Company, tend to acquire the entire brand and hold on to their books for their prescribed investment horizon, often four to seven years.[4]

Family offices are also an active group in the franchise industry. For instance, Huddle House was acquired by Elysium Management, a family office investment firm, from its previous owner, Sentinel Capital.[5] One thing family office and PE investors have in common is that they both often target large, national brands and they focus heavily on the ability to scale.

BBVA’s report noted that the multiples on the acquisitions of entire brands have generally ranged between 6 times and 20 times, while the multiples for acquisitions between franchisees generally range from 4.5 times to 8 times, depending on concept and size of operator.

The activity was not just limited to known franchise brands. Global private equity space also experienced significant investment activity in the healthcare vertical, with a trend to drive consolidation in the industry. This trend was also observed in the franchise business model. The Riverside Company acquired CarePatrol, a senior care placement company, only to consolidate it with ComForCare, a home healthcare operator with plans to create a Dwyer-like platform. Synergy Homecare was also acquired this year by NexPhase, adding to its healthcare portfolio, which includes healthcare companies such as pain management company, Clearway Pain Solutions, and revenue cycle management provider, Meduit.[6]

Given the trend that we have seen thus far, the outlook for 2018 remains bullish, as corporate dealmaking is expected to benefit from US tax reforms and steady economic growth. However, on the other hand, political and regulatory uncertainty is likely to remain a key concern.

Major PE Acquisitions in Q1-2018

Franchise Brand Private Equity (Acquiring Company)
CarePatrol The Riverside Company
Sky Zone Palladium Equity Partners
Huddle House Elysium Management
Real Property Management The Riverside Company
Juice It Up! Dover Shores Capital, Britt Private Capital and Jupiter Holdings
SYNERGY HomeCare NexPhase
Delta Disaster Baird Capital
Re-Bath Yukon Partners, Webster Capital and Sorenson Capital
BlueFrog Plumbing + Drain Yukon Partners, Webster Capital and Sorenson Capital
5 Day Kitchens Yukon Partners, Webster Capital and Sorenson Capital
Lapels Greybull Stewardship
Dwyer Group (Mr. Handyman, Molly Maid, Aire Serv, Mr. Rooter, Rainbow International, Mr. Electric, Glass Doctor, The Grounds Guys, Five Star Painting, Window Genie, Real Property Management) Harvest Partners
Jackson Hewitt Corsair Capital
Quiznos Bluff Capital Partners

 

[1] Pricewaterhouse Coopers Market Summary Q1-2018

[2] Private Equity Capital Briefing

[3] PR Newswire

[4] Axial Market Report

[5] Restaurant Business Magazine

[6] Home Healthcare News