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FRANCHISING USA: WHAT YOU NEED TO KNOW ABOUT PRIVATE EQUITY IN FRANCHISE

Choosing a franchise brand is one of the most important decisions of your life. It’s a long-term commitment that can either bring you amazing rewards or much frustration.

The franchise space is full of diverse opportunities, each company with its own DNA, benefits and drawbacks. Due diligence is key when choosing the right one for you, but there are certain factors that, while they aren’t complete deal-breakers, require additional research and fact-finding.

Across the franchise space, private equity firms are picking up steam, buying controlling interests in franchise organizations, infusing them with a quick burst of capital and fresh leadership, then turning them around for a profitable sale. The benefits can be extremely tempting for franchisors, especially for brands with troubled histories, like bankruptcy or chronic lack of growth.

Done right, partnering with private equity to access additional capital and leadership can benefit a franchise brand. But done wrong, it can hurt a brand and its franchise owners. Regardless of the industry, when private equity enters a franchise, company culture can change almost overnight. That’s because some private equity firms aren’t in it for the long haul. Private equity’s goal is often to improve the bottom line both on financial statements and the Franchise Disclosure Document (FDD) — sometimes at the expense of staff, programs and franchisee support.

Before you join a franchise, it’s vital to make sure you know who owns the brand, the organization’s financial health, and everyone’s level of long-term commitment. Here’s a quick guide to private equity that can help you make an informed decision.

Read more at Franchising USA.

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