20 May 2013
Category:
Franchising
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Francorp Looks At Franchisors And Private Equity Firms

Investing in franchisors is reaching fever pitch as private equity firms stretch outside of their comfort zones in search of alternative investment strategies.   Roark Capital Group, an Atlanta-based private equity firm that focuses on franchises, brand management, and restaurant companies, made a splash last year with the (reported) $430 million dollar aggregate transaction to gain controlling interest in fast food giant, Arby’s.  The investment is one of various acquisition deals in the hundreds of millions of dollars that were made between an underachieving franchise and a major equity investor in the hundreds of millions of dollars.

 

In a still-unstable market, companies are diving in on the emerging IPO craze.  “After the market has done so well, from a timing point of view it’s a good idea to get it done now,” Hugh Johnson, chairman of Albany, New York-based Hugh Johnson Advisors LLC, said in a Bloomberg interview.  “If I were in the private equity business, I’d be trying to raise liquidity as fast as I could.”

 

Private equity firms look to leverage a brand name already known to the public.  Roark has committed an additional $50 million through 2013 to help the Arby’s franchise brand achieve its full growth potential by promoting new menu items, remolding stores and opening new locations domestically and abroad.

 

According to Arthur Lipper III, International Financier and Corporate Advisor, “Franchising, as an effective means of replicating commercial successes, will increasingly attract professional investor interest in franchisors.  These knowledgeable investors will appreciate the significance of a franchisor’s growth of income as indicia of both franchisee customer satisfaction and an expansion of the franchisor’s network.”  Retaining the franchisees and management team, investors leverage this experience and ability to keep the trains on the tracks for a successful business.

 

While some in the investment community might question Roark’s heavy commitment to underperforming companies as a high risk investment strategy, Don Boroian, CEO of Francorp, a franchise development firm located in Olympia Fields, IL, takes a different view.  “These guys really know what they are doing not only as financial operators, but as operators in general, and have put together a great team.  I have no doubt when the time comes to implement their exit strategy they will have turned these distressed properties into much more valuable commodities for a sale or IPO,” says Boroian.  Several of the franchise companies Roark has acquired had their franchise programs developed by Boroian’s company.

 

The acquisition of Arby’s, the second largest franchised fast food sandwich chain raises Roark’s profile. Previous franchise brands in their portfolio include Focus Brands, Auntie Anne’s, Il Fornaio, Bosley’s, Seattle’s Best Coffee, Corner Bakery Café, Atkins, Peachtree Business Products, Petvalu, Carvel, WingStop, GFL, Waste Pro, PSC Info Group, Cinnabon, BatteriesPlus, FastSigns, Money Mailer, Schlotzsky’s, Moe’s Southwest Grill, Primrose Schools, McAlister’s Deli and NSA Services.  Erik Morris, managing director at Roark, worked on the Wingstop deal back in 2010 said in a Franchise Times interview, “They know what they do well and they deliver on it.  They’ve grown very nicely, and there’s a lot of opportunity to continue to grow the brand in existing and new markets.”

 

Roark’s past clients share a history of generating multi-million dollar figures in system sales and being internationally active.  And franchising has been the route of choice to facilitate growth of this nature.  Roark has been acquiring proven sustainable operations in saturated markets, choosing middle-sized companies in industries where smaller size is not an impediment to success.

 

Following their acquisition, Roark merged the Schlotzsky’s, Cinnabon and Carvel concepts under one roof as “Lotz Better.”  According to Restaurant News, the three entities subsequently realized significant growth, immediately selling 75 franchise agreements for 25 restaurant locations.  Collectively, these franchises can penetrate into new markets, such as New Jersey and Texas, like never before.

 

Roark Capital seizes the opportunity to create a great deal of incremental value in brands that are either under-developed nationally or are in need of some type of brand revamp program.  Corner Bakery Café, another recent Roark acquisition, is a classic example of a powerful marketing machine reconditioned to new market demands.

 

Interested in learning more about franchising and/or how to franchise your business?  Visit http://www.francorp.com to download the free e-book and take the franchise quiz today!  For more immediate assistance call 800-FRANCHISE (800-372-6244) to speak directly with a franchise analyst to learn more about taking your business the next level and beyond.

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