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Private equity (PE) can be a powerful growth accelerator for the right brands and operators. For many, a PE investment may feel like validation: access to capital, strategic insight, and the backing of a sophisticated financial partner.
The reality is more nuanced. PE is not a one-size-fits-all solution. Determining whether a PE partner is right for your business requires a deep understanding of how these investments work and the tradeoffs required. The key is determining whether an institutional investor or PE partner is a fit with where your business is today and where you want it to be tomorrow.
PE firms seek investments that offer a clear path to scale and generate a strong return within a defined period, typically four to eight years. A traditional PE investor’s goal is to grow enterprise value over that time and exit through a sale or recapitalization.
For established, pro-growth brands and multi-unit operators with infrastructure in place, this can be a productive relationship. For emerging brands or newer operators working on improving unit economics, proving out new markets, or building out systems, the pressure to grow quickly can create hardship. PE investors expect growth, and if your business needs time to evolve strategically, you may find the typical PE clock ticking too quickly. The additional risk associated with less established brands and operators can also negatively impact PE valuations, which can result in less capital invested or a smaller remaining ownership stake for the brand or operator.
Not all PE firms operate the same way. Some are financially driven and purely focused on efficiencies and return. Others offer strategic support, like operational guidance, industry and development experience, and broad networks. Smaller brands and operators can benefit from investors who bring outside resources and expertise.
It is also helpful to align with a PE partner who understands the franchise and multi-unit business model, including the differences between corporate and franchised units, the dynamics of franchisor-franchisee relations, and the drivers of enterprise value. Whether you’re a brand owner or operator, partnering with a PE firm with real multi-unit or franchise experience can significantly affect execution and outcomes.
Investment horizon is another critical variable to consider when evaluating a PE partner. Many founders and operators underestimate how quickly a four to eight-year investment period can pass when executing on a multi-year growth strategy.
A longer-term investor provides room for deliberate planning, disciplined development, and continued operational refinement. Less mature businesses may struggle under short-term performance pressures. A newer brand that is still in the process of refining its unit model or a franchisee making their first significant investment needs time to execute properly. That may not align with an investor looking to double EBITDA within three years.
In the same way that there are different types of PE investors, there are also different ways that PE firms can structure their investments. A lot of PE investments include both equity and debt or debt-like components, often in the form of preferred returns and payouts. If growth targets are met and the business performs, the returns can be substantial for everyone. However, if growth slows, these obligations can become a burden.
Private equity is about alignment on growth targets, timelines, roles, and exit expectations. A PE investor might want to introduce new initiatives or expand into new markets faster than your team is ready to go. Franchisees may feel pressure to take on more development or acquire additional units beyond what their teams can realistically manage.
Cultural fit is just as important as financial structure. A PE investor who is looking for daily updates and formal governance around all decision-making may clash with a founder-led team accustomed to informality and autonomy. PE firms often introduce new oversight and structure that can be a shock to some operators.
Private equity investors are looking for proven potential and a clear path to scale. To drive interest and maximize the value of your brand or company to a PE investor, it is important to have:
If PE doesn’t sound like the right fit, there are other capital alternatives, including family offices, traditional senior lenders, mezzanine lenders, and unitranche lenders. These options may be able to provide capital with longer timelines or fewer strings attached.
Private equity can be a powerful lever for growth, but it’s not the answer for every business in every situation. The best outcomes result when both parties are aligned on a vision, strategy, and timing. That starts with an honest assessment of your business’ current capabilities, your team’s readiness, and your appetite for rapid acceleration.
PE is more than capital; it’s a business partnership. Choosing the right partner can unlock transformative growth and value. Choosing poorly can expose your business to more risk than reward.
Tori Wagner is a vice president with C Squared Advisors, an advisory firm that focuses on multi-unit franchisees and franchisors. She has worked with franchisees for more than a decade, advising clients through M&A transactions as well as raising debt and equity capital to support strategic initiatives. Contact her at 508-769-0097 or tori@c2advisorygroup.com.