Franchisee-Franchisor Relationship During Franchise Transactions

By: Carty Davis
Published: March 19th, 2019

Carty Davis is a Sport Clips area developer who oversees more than 70 units. But he's also a partner with a boutique investment bank and has experience with hundreds of transactions in the multi-unit franchise space.

Carty has witnessed changes and developments over the past few years - like the extension of timelines for industry-related transactions. Everything from multi-unit franchisee approval, franchisee-to-franchisee transfers, and private equity/family office investments, to refranchising and recapitalizations with both regulated and non-regulated capital providers.

He says time kills deals and longer cycles can expose transactions to franchisor approval sentiment, changes in lending conditions, and macro or geopolitical events. But he says the deal process can be handled with the right focus, time, and effort up front.

When it's time to be involved in a deal, Carty says stay calm. No one group or factor is responsible for the realities of today's elongated deal times. Rather, focus on what you can control. Tighten up your finances, spend the smart money early in the process to hire the right team, and get to work.

Here he talks about working closely and alongside the franchisor.

• Franchisor. Many brands are now taking a deep dive into the details of a transaction and critically reviewing financial results, capital plans, minority or new partners, and even term sheets from lenders. In addition, Tier 1 franchised brands are often inserting mandated development requirements as a condition for their consent. This requirement is becoming more widespread and increases the risk of cannibalization on existing stores achieving ROI benchmarks. A solid relationship with the franchisor and transparency are absolutely necessary for growth. Based on the overall relationship with the franchisee, franchisors will show some flexibility in timelines and requirements. The most successful franchisees are those who spend time educating the franchisor on what they are doing in their markets while seeking macro guidance from the brand.

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