*Shared with permission from Franchise Times.
Matthew Liedke
Good morning. My name is Matthew Lidke, senior writer at the franchise times, and I'd like to welcome you to another deal makers panel where we talk to the experts on all things buying and selling. This session is titled franchisees attracting new investors and how you can join the. Private equity firms, family offices and new franchisee groups are among the buyers for franchisees wanting to retire or take some trips off. The table. This panel of successful buyers and sellers tell how to get a deal done. Joining us today is Rick Ormsby, the managing director at Unbridled Capital. David Paris, a partner at the firm Paris Ackerman and Alicia, managing director at Catalyst Insight Group. I'd like to start the first question today with Rick. In 2022, you helped work a deal with AET Taco to purchase 16 Taco Bell restaurants who are retiring franchisee for everyone on the panel. What are some of the hurdles that franchisees should be aware of when making a sale like this one, and how do you help? Them overcome these challenges and of course Rick will start with you and then we'll go to David and then Alicia.
Rick Ormsby
That's great. You know, I was thinking about this question. We represented actually the helm family, which is a long, long standing franchisee of of you know over 40 years. And you know, first and second generation franchisees have been around a long time, have have certain have certain attributes in common, a lot of them. Signed up for this whole thing years ago because it was part of the American Dream. This was this was something like the American Gothic picture where you have the guy and his wife with the pitchfork and the, you know, the corn farm behind him, you know. And so they got into this business. And they got into this business as independent operators looking to make their lives better and then over. Time it's grown. And So what you what you're left with are people who sell their companies when the time comes, they they they need to have a good helping of patience and compromise and humility. And these things are somewhat. Hard to come by when you're an independent operator who's really kind of done it all yourself over the years with just some some general guidance from the franchise or. You don't know what you don't know. And so in this particular transaction, we were fortunate and and. With a lot of our clients, we're fortunate to. Have clients who? Are realizing that the expertise is needed and that they have to compromise and that they have to be patient. There's a couple of things that we do to educate the clients and I think the advisors will do this. So if you're a franchisee. Who is a you know possible seller? You should probably hear this timing is is oftentimes most clients don't realize how long it takes. To do these deals. Six to seven months is typical from soup to nuts, and it's increasing in time over the last, you know, 12 to 18 months. A lot of the franchisors have changed their franchise agreements to increase the amount of time that they have to consider a transaction before approving or disapproving it from usually what used to be 30 to 60 days to now 90 to 120 days. And that's created a meaningful. Gap in the in the time now that. It takes to. Do a deal. The legal ramifications, I know David's on the phone. Here or on the webinar here. And and you know. When I started in this business, I actually. Did a deal on a napkin can. You believe that? I. Actually did a deal on a nap. That doesn't happen anymore, man. But you know, with today's private equity and family office buyers, really the expectation needs to be that if it's going to be a high price, it's going to be a sophisticated buyer. If it's going to be a sophisticated buyer, there's going to be sophisticated legal teams representing. You've got taxes, which are oftentimes you'd be surprised that these first and second generation clients don't think through their tax impact of what they're. Doing or the legacy? I'm a business owner myself, so legacy is important to me. What's going to happen once I sell this business to me emotionally. What's going to happen to my family with the? Money that we're going to create here. Couple of other things. Quality of earnings Q of's are. Common when you sell. Businesses a lot of franchisees are not are not prepared for that. So there's basically a fine tooth comb that goes through your financials with a third party kind of accounting firm in most most situations and and you know it's not just the EBITDA that you have on the page when you sell a company. When you put it up for sale, you have to keep your EBITDA and your profits strong throughout the due diligence period all the way to closing or you could face retraining. And I think a lot of sellers don't don't know that. But lastly, I think I would say a couple of things. Franchisors now have relationship agreements or something termed similar to that. Each franchisor is different, but these relationship agreements are pretty pretty stringent in many cases and define what you can and can't buy. What personal guarantees they're going to be, what the development requirements are going to be and over how many years, what penalties are going to be to shut down stores etcetera, etcetera, etcetera and these relationship agreements are really.
Matthew Liedke
The teeth? The.
Rick Ormsby
Teeth that the franchisors will put on these new private equity and family office buyers when they go to to seek approval, that's something to keep in mind and. And then lastly for all parties involved, but especially the seller. Of these buses. Time is an issue you should expect to spend. 2 or 300 hours of your own time trying to get. The deal closed. Even if you hire. An advisor. It it it's a it's it's a bit. Of an arduous process. But. Can be a successful one.
Matthew Liedke
And then David, if you want. To take over that.
Speaker 3
Yeah. I think Rick did a good job of pretty much tackling all the major issues. The two that I would focus on that are implicated in in the day-to-day of the deals I work on are preparation first. As a seller, you know, Rick touched on it with the QB. Comment, but as a seller you need to have all of your documents in line. Set up a sophisticate. Data robust data room where you know you've got all of your leases complete, lease files, franchise agreements, ancillary documents like any of the contracts you're going to be looking for the the purchaser to to assume and of course all of your financial data, you'd find that a lot of franchisees are more mom and pop in mentality. And when they step to step up to the platform to sell their network, they're not adequately prepared. So preparation is key. And secondarily and and probably the most important point that I'm seeing. Missed upon frequently. Is if you're. A seller, you need to operate your. Network as if the. Deal is not going to close. So if you've got development obligations that you are satisfying, you're going to be turning over or through some some sites that are presently under development. You need to. Keep developing those sites and stay on the construction timeline as if you weren't going to close and. Something was going to go along with. Likewise, being in the business and continuing to operate the business, you know in in the way that's customary with your past performance is also critical because you see a lot of sellers kind of check out mentally. And next thing you know, EBITDA is down. Employees are leaving and and that. Does create the opportunity for a retreat? Like Rick mentioned so. Those are my key points.
Matthew Liedke
- And then Alicia, we're going to. Go to you.
Speaker 5
I feel like I'm playing dominoes with my family. When you're last in the chain, you. Have fewer moves. After so many good comments, I would just build on what Rick and David said. You know when. Because the sale process is long, you're basically living your pro forma while you're going through the sale process, so. Be realistic in your own forecasts. A lot of sellers will plump up their forecasts to try to make their business look better, but then it takes six or seven or more months to get the deal done. And if they don't meet their own projections, then you're going to face a retreat, or certainly a lot of hard questions from the buyer as to why you're not meeting your own forecast. So you got to keep operating it, as David said, as if the thing isn't going to close but have realistic forecasts. Well, I would say long before you decide to sell your business. Of course you want to have a really solid reputation in the system that you're in and your comps and your trends need to be, you know, at or better than the rest of the system to command the best price. There is definitely a quality premium paid. And it's it's difficult because you know sellers will hear anecdotes of different groups that traded, but don't necessarily know what those comps were compared to where they're sitting. So that's why you need to get really good advice and help to understand that. So you've. But good expectations coming into the process and hopefully can build toward a good event by having a high quality system in the 1st place, but not of unrealistic expectations. When you're sitting across, especially from a PE buyer who is going to be is a financial buyer, they've got to you share your responsibility to their investors. And they're going to need to justify the price against the market comps.
Speaker 6
Hey Matthew, I was.
Rick Ormsby
Going to jump in here at. Least you made me remember. A point. Really good stuff, Alicia. You know, don't wouldn't you guys all agree, at least from our perspective, there is this thing called failure to launch. Like you know, you know, you say you want to put your network or business in a position. To where it's ready to go. You know, if the if the diligence hasn't been done on the front end and and sometimes sellers think like it's like a house. Like Ohh don't sell it. If I don't, you know. I'll just keep it for a while and I'll. Put it back on the market later. In this world, doing that is a wreck. Don't do that. Like do not do. That don't do that. Be ready and only do it once because you're damaged goods and your employees find out about it and the whole darn thing goes haywire if you. If you're not like Uber prepared before you actually start.
Matthew Liedke
OK, thanks for that input, everyone. And so we'll move on to our second question and we're. Going to start with David. David, in a story done by my colleague Beth, you had mentioned in an interview that deal making had slowed down in January and February. I wanted to ask you, is this still the case on your end and for the whole panel, have you also been seeing this and if so, why? Do you think this is happening?
Speaker 3
So I have an answer to the first part of the question and the second part is a little dicey because I don't. I can't explain certain things, but for sure at the beginning of this year through. You know, you know year to date deals have slowed down, but not like but measurably it hasn't been a complete decline. We're seeing a lot more like onesie Tuesday store deals, right as opposed to or actually on one hand a bunch of ones and Tuesdays and on the other hand, some actually massive network sales. So there's not, we're not seeing those in between kind of you know. 10 to 20 store network deals. I don't know the reason for that, but obviously the slowdown is largely based upon the economic atmosphere that we're in right now, right with what's going on with banking and the raising of rates. Obviously banks have become more hesitant to let. You see, on the larger deal side where banks are syndicating their loans, you're seeing them have to go out and get more financial partners. So we're working on one deal where the senior lender had to go out and actually get a fourth bank in to. To bring it to the close.
Matthew Liedke
You and one.
Speaker 3
Other thing that I'm seeing though is that and this is what I can't really explain is that for the deals that are going on, some of them are falling apart along the way. And it's largely because the operators are seemingly checking out more frequently. Now and I don't know if. It's if the current. Economy has an impact on their, you know, mental state. Or what? But. For some reason you're just see. Being you know after. QE's take place you're seeing. That the EBITDA is. The actual EBIT is lower than what was, you know, projected at the onset or sorry set out at the onset and then you're and you're seeing constant gradual dips in performance as well. And I don't have the actual reason for that. I'm curious. To see if. Everyone else is seeing that here and with their thoughts are.
Matthew Liedke
And then we'll move to Alicia, then finish with. Work on this one.
Speaker 5
Now look, I mean, it's gotten more expensive to do deals, which puts pressure on deal making. So yeah, it's definitely slowed down also though because you know a lot of folks are digesting it, it was a very busy market from middle 2020 through middle of 2022. A lot of teams are just kind of tired. They've acquired a bunch of assets already and they're still digesting those and trying to work through. To get the efficiencies and to start living up to the early part of their business case and then interest rates go up, everything gets more expensive if part of their deal included adding new units. Now they've got, you know they're facing more expensive construction costs and so on. So I think that's that's part of it as well. Folks are just sitting back just a little bit and waiting to see how things shake out. But deals are still getting done and you know we I am on the board of a a large franchisee of Urban Air and you know, we just did a just did a transaction in February. So quality deals, you know assets that you want. You still want to complete those those transactions, but definitely folks have slowed down a little.
Rick Ormsby
Yeah, I would say Alicia, David, interesting comments, I agree. I mean like it's not look at you know we sell people's companies, right as an advisor and and I would say our deal flow right now is probably down 50% more or less from what it would be in a Standard Time. Frame right now I mean it just is. I mean roughly. More or less, I mean, there's a couple of factors. You know, I mean, one of the factors is. You know. Let's go back to the recent past and think about the COVID push, and then everyone was scared that that, that the, you know, Democrats were going to raise the the capital gains tax right at the end of 2021. Right. Remember how Joe Manchin was the one who said. No, and save the day for for the those. Who believe in lower taxes. And so and and. So but, but that was a that was. Even more powerful to me than the push. The COVID increased sales and profits during COVID it was. A huge push for. People to try to get sold before the end of 2021. Now what does that? Do it kind of leaves in its wake. A natural vacuum. Sellers for a year or two, it's. Just as different from like having. A Chevy truck and saying no, you know. 0% interest come by. It gets people to buy the truck, but then, like in the wake, when the promotion's over, there's no one who buys trucks for 6:00 to. Nine months, right? Something like this. So there's a little bit of that going on, which I think is the reason why we're seeing the deal, the deal flow, turn down a little bit, but a lot of it is like David said is, is is because of the economic conditions. Financing is harder to get. Multiples have come down. A little bit, not much. And I'll talk about this in a little bit. The major thing is. Just that EBITDA itself is lower and it's an interesting comment that David makes about like we're seeing small operators and large operators do things, but the ones in the middle are the ones that have been quiet. I think I agree. With that, actually, I hadn't thought about that active. But I I think I think and. I don't know exactly why that is either I. Would say the. Smaller operators are probably less driven by trying to time a price. Maybe they just get tired. You know what I mean? Maybe they're just ready to go and they don't. They don't think so strategically. And the larger operators. They're more. They're more. Driven by the the financial conditions. Maybe if they're investors, I don't know. But it's. A really it's a it's a really good point.
Speaker 3
I think that one of the issues that's impacting smaller operators is the cost of the CapEx requirements that are coming and the costs increase in those CapEx requirements like remodels in certain brands have gone from like 300 to. $500,000. So the small amount of. Props, you know, would rather just pack up their tents, you know, take chips off the table and sell to a larger conglomerate. Definitely think that's part of.
Rick Ormsby
It and there's a big don't. You all agree that there is a growing disconnect between the franchisees and the franchise. Would you agree?
Speaker 3
With that, depending on the system, I think that disconnects actually been there. You know for since the beginning of time, you know 11 faction focuses on top line, one on bottom line, there's always that the vibe, right? So, but yeah, and franchisors in in many systems are not making. The transition or transfers any easier. They're imposing more and more requirements. I saw a list I won't mention the brand, but I saw a list of requirements yesterday come across my desk. That was the first time we're doing business with this brand where we represent the seller and the net worth requirements for the buyer are around like 750 a store. So think about that right. When you get up to bigger, bigger networks and spousal guarantees and all kinds of things, so franchise orders definitely get handsy, especially when the buyer is a family office. Or PE firm.
Matthew Liedke
- Go ahead. Sorry.
Speaker 5
No, I agree with that.
Speaker
Please go ahead.
Speaker 5
I mean the the reason the requirements to sell they know, look, these are long license agreements. They don't want to lock in anybody who's not going to be able to meet it, but the other reason that they're being so handsy is, as David said, is. A lot of these big systems have securitized these royalty streams. They've got to basically protect them and they've got an opportunity now with the sale to make sure it's going to a well heeled buyer who isn't themselves going to get themselves over leveraged, which we've seen with some of these larger operators, right. So this is their chance. To protect that periodization stream that they've already sold, basically. So that's why they're.
Speaker 4
On it, right?
Rick Ormsby
Good point.
Matthew Liedke
- So we'll move on to the third question and this Alicia will be. Circling back to. You and kind of going back to the title of today's panel, when franchisees are looking to make a purchase and looking. To attract the. Investors to help get a deal done. What are? Some of the best things. They can do to help attract those investors and. We'll kind of rotate around like we've been doing with followed by Rick and then finish with David on this one.
Speaker 5
I think we've talked about a number of them. One thing we maybe haven't talked about is networking in the your own system. You can get a lot of information from your fellow franchisees who's who's approaching them, who they're talking to. You know what they're seeing because you know, in systems that are getting a lot of trades done, there are buyers. Actively sort of looking around for great opportunity. So you should really be doing some of that networking work ahead of time. And as we talked about, you know having. Maintaining instead of sale readiness for your business is really important. Whether your sale is, you know, a year from now or 10 years from now, the more pre work you can do just to be ready in your own documentation. And your due diligence, that's really helpful to make sure you have a good transaction.
Rick Ormsby
I mean, I'll take a different. Angle on this I mean. I I think if we're looking, if if if we're answering the question of like.
Speaker 7
A A buyer.
Rick Ormsby
Whether it's an existing franchisee or someone who's an independent sponsor, or someone who's a private equity family office who's looking to buy. A business. And we're asking what what they need to do to attract capital. I I talked to hundreds if not over. The years thousands of these types of people. Who are looking to buy? Things and I'll tell you kind of my playbook. Of what I tell them. They come to me and they they ask, you know, and I asked like, two or three questions. Are you interested in? Where's your money coming from? What brands are you interested in and what's your timeline? And if I get quite answers like I'm interested in anything anywhere and I've got plenty of money.
Speaker 4
Then I know.
Rick Ormsby
Without question that you're not going to get, you're not going to find a deal. And I've kind. Of put you off to the side and say nice to meet you. It usually what has. To happen is and and in order to attract an investor, if I'm going to be an investor, I'm not. An investor in these businesses.
Speaker 6
But if I'm going.
Rick Ormsby
To be an investor, I want someone who has a specific plan of attack knows what brand they're going. To go after knows how they're. Going to do it and where they. Want to do it, and then they're plugged into the deal flow and they've met the. Franchisor and have a game plan for doing it. And so I'll tell.
Speaker
People, I'll say.
Rick Ormsby
In six to nine months from now, come back to me and pick three brands that you want to be involved in. And then go see corporate and all three of those brands get yourself pre approved, have a plan for what you're going to do for. The next 5 to. Seven years. Convince me of your. Plan and then I will be convinced that you're a real. Buyer for a business like this? And if you can convince. Me. Then you should be. Able to convince an investor, but. If you don't do that, I'm.
Speaker
Going to see you doing.
Rick Ormsby
Another job in a year and a half on LinkedIn.
Speaker 5
That's what's going to happen.
Speaker 3
So I'm going to. Take a different tact and approaches from another angle, just so we can highlight some some things that I've just seen in recent deals. So when you, what happens when you get the investors right as the purchaser and even though those investors are typically legally bound to pledge to pledge their money and and you know contribute money when called upon. There are times when you lose investors, so you're, you know, you're this purchaser. You set up a fund, you've set up a group of individuals and and firms. That are looking. To back you and. Then invariably, you're going to lose some equity checks, and So what happens? Then so now you don't have. Enough money to come to the table to. Close the deal and what? We've been seeing is 2 things and and neither of these are novel, but they're just being implemented more frequently now. Is to bridge that gap. You go. These decelerates. Sorry, the buyers are coming to the sellers and asking them to roll equity. Forward into the deal. Now, sometimes that happens at the onset and other times it it happens when you they you lose an investor or a lender lowers the amount of debt that they're going to provide, which is also happening in. This environment, right? So when you lose investors or lenders. That's purchase. There one one way to remedy that is to ask the sell the seller to role equity and we need to invest in the company that's actually buying the existing network and and that kind of you know that provides more usually more more equity on the on. The purchase side. To to bridge that gap or these purchasers are asking the sellers to hold notes. Or financing, right. So it's a secondary level or usually a tertiary level financing. So where you've got now the senior lender who maybe has pulled back how much they're going. And a mezzanine lender under the senior lender and then the seller is now holding paper. So this is just again these are just solutions to what happens when the buyer loses the investor that they attracted at the onset kind of take another angle to answer your question.
Matthew Liedke
- So we're going to move on to the 4th question and we're going to go back to you for this one then. This is something that we kind of talked about a little bit earlier, but I wanted to ask you about the overall buying and selling climate right now. There is talk of potential recession, increased interest rates from the Fed and other economic factors in place. How will this impact? Buying and selling when it comes to franchising in 2023 in start with you and then we'll. Go right to. David and then Alicia on this one.
Rick Ormsby
Yeah, it'd be easy to kind of do a. Doom and gloom scenario I. Don't necessarily see it, but, but I. Would point out a couple of things first. We've had, I mean like of the 14 transactions we're working on now. Like 4 of. Them we've released I think in the last you know 60 days for sale and each of them has had somewhere between 8:00 and 12:00 offers on these on on. Each business, that's a. Lot, right, that's more. Than even normal. And and from that small sample size you. Know typically when we're. Representing clients, we're typically representing really healthy clients with really good businesses, not the distressed deals as much. But but my my small sample size leads me to believe that because. There is very little. Supply of of good businesses on the market right now, that demand is still probably 80% of what it was with buyers who are flush with ERC credits and have a lot of cash if they're looking. To spend it. I think we're. In a really favorable situation right now, where sellers actually don't realize. This but that the the values. That they can achieve in the sale are higher than than than what many people are saying or saying in the tea leaves.
Speaker 6
I think, though, that that.
Rick Ormsby
Because EBITDA is generally down but improving over last year gradually because these because of pricing increases and maybe lessening commodities slightly, I think we're. Seeing you know in these businesses. Typically sell on a trailing 12 month EBITDA number. So what you're seeing now is kind of operators are kind of seeing increasing. Sales and EBITDA. But they still have a trailing 12 month picture. That kind. Of looks a little bit depressed. For that reason, most of the clients that we're talking to are probably not selling now. They've been holding on for the last year and a. Half but I think. We'll probably see some uptick in the Q3Q4 time frame. The interesting things going. To be like if the deal flow does. You know double. That in the in the back. Half of the year. And the demand stays the same or maybe lessens. What's going to happen to valuations and it's possible the valuations are going to drop largely because lending out there is very chilly. Right now it's very bifurcated too. You have lenders who are just jumping up and. Down for you. Know certain types of assets and certain types of brands. But in other. Brands. There's almost. Nobody that will. Touch the the the brands right now. Regardless of how good the P&L's are, so I just think the tightening credit people are underestimating. How tight the credits become as people are pulling out their deposits and it's just making it a situation where lenders are not. Going to be lending as much money. And I think we're probably going to be seeing some increasing geopolitical risk as we move, you know, forward, right, these things kind of tend to to to to make the lending environment a little bit negative. So I'm not. I think it's possible we'll see more deal flow. Probably we'll see more deal flow at the back half of the year and then certainly into two. 1024 but my. Guess is that there's going to be a higher percentage percentage of deals that don't close because of the geopolitical environment, the lending environment, the interest rates and you know and and those sort of things.
Speaker 3
So I think Rick covered almost every every concept that I could have thought of there, but I I will touch upon something that Rick said. I agree also. We're seeing that in the current environment that the Tier 1 tier one, you know QSR's and retail are still kind of the darlings of the of the lending. Industry, if there are garlands right now, but then I do see banks backing off of like full service restaurants and other types of, you know, more risky or or business that are considered more risky from. The lenders point. With you I can. I see. I I think there's going to be a pick up again. I haven't. Seen a precipitous drop? Off in in deals right now. And the thing one thing that's got me one thing that's kind of amazing is amazing to me is that the multiples that we're seeing, the deals we're working on are holding steady. And there's a typical range of multiples. Multiples per brand that have been kind of historically achieved and you know, even though the cost of funds is going up, multiples are staying pretty constant with EBITDA is dropping, right. So obviously the purchase prices, overall purchase prices are low, are lower. If they're based on. Keep it up. But but sellers, who are they? They still have the multiple as that metric in their head that drives them to actually decide to sell. They're seeing consistent multiples and I think that that factor is going to probably lead to more consistent and even an increased uptick in deals that we say.
Speaker 5
Yeah, I'll just add a different perspective. I agree with Rick's analysis of where the deal flow is going to be and sort of the timing when it might break. One thing to keep in mind is that at the franchisor level. The space is kind of picked over from a private equity perspective. You know the the transactions that are going to happen, a lot of them have happened or are already sort of in process. And so I think more PE firms are looking sometimes for the first time at multi unit systems acquisitions instead of buying at the brand level. Now some are dedicated and only will look at multi unit or only look at franchise orders. But I think we will see some maybe new folks coming in. Toward the second-half of the year, especially if more assets are, you know, become available, people start putting more on the market, think we will start to see a little bit more interest from some of those PPE groups. They're not valued as highly typically as a franchise or because of, you know, the restrictions being a franchisee. But you know they got capital. To deploy so at some point you know if you can't find a deal somewhere else, and if there isn't a retrace that you can acquire and you like the franchise. Then there's a lot of opportunities in the multi unit arena to you know potentially do some nice roll ups. So I think we are going to start to see more folks coming in at the back half of the year if more deals don't become available at the franchise or level. But as Rick points out, you've got to come in to assist them with the strategy and. Have a game plan or you're not going to be successful, just milling around looking for potential acquisitions because there are folks who want to acquire in those systems who are very focused.
Speaker
- So I'd like to.
Matthew Liedke
Move on to final comments and if everyone could just give their overall thoughts on on today's subject matter.
Rick Ormsby
I guess my my comment my comment would be. David and and team that. If you look at the last 20 years of the valuation of of of a. Business like this? Any kind of franchise business of any kind of scale? You know, we're still probably in the. 80th or 85th quartile percentile. In terms of valuation, so if you're. Watching this and you're.
Speaker
A 60.
Rick Ormsby
5 unit operator, but you know who's been in the system for 30. Years, whatever the numbers are.
Speaker
You may be looking at.
Rick Ormsby
2021 and you may be saying. Golly Gee, I missed my boat. But, but that was probably not never. Coming back, you know what, I. So I just encourage you like the the environment that. We're in is. While it is is, I'm encouraged like David is. It's better than what I. Thought it would be. Prices haven't dropped as much. As I. Thought they would have. Dropped good deals are still hard to come by. And have plenty of. Buyers and valuations have come down a little.
Speaker
But if you but.
Rick Ormsby
If you've been doing this a long. Time I mean. You're emotionally tired, psychologically tired, physically tired, and you have a plan for your family that that doesn't involve working the rest of your life. I mean, it's still not a terrible time to be considering selling or buying an asset, especially when you look at a 10 or 15. Or 20 year horizon. Of how these things have traded.
Speaker 5
Yeah, I agree with that. I think also just as another as another issue, one of the hardest places to be right now is in franchise sales in a legacy system that still has room to grow, but also a lot of experienced operators who might want to retire because resales are very attractive. And as Rick points out, the valuations. Haven't dropped that much and if I want. To you know. Move forward in a system. The fastest way to do that is with a nice chunky resale and not open new units, especially with uncertainty around construction costs and so on. You're doing a remodel or doing a refresh is much easier to kind of get your head around than total Greenfield development. So I think there will continue to be pretty robust. Interest in these resales of good systems, good, good groups within good systems for that reason, especially in these in these larger brands that have less little bit less white space and some you know legacy owners. That still need to be bought. Out at some point.
Speaker 3
I'm just. I'm going to go back to my prior point, which is I'm encouraged that you know there will be an uptick here, again pretty surprised and and happy that the deal flow hasn't fallen off tremendously. One other point in in terms of like you. Know why we are still seeing some pretty steady flow of transactions like drop off that we didn't mention? Was that there are franchisees out there who don't have legacy plans in place or succession plans? In place. And so I mean. I'm seeing more and more of that where? The second generation. Isn't interested in taking over the business. And so again, that's, I don't know if it's something in the water or not, but we're just we're seeing increased instances where that's happening. So that along with, you know. Avoiding the CapEx expense expense, the capital expenditures of the remodels that are coming up. I I think I think we're going to see a continuing flow here.
Rick Ormsby
It's always been in our book that's always been the way it goes, right? Like between 1/4 and 1/3 of. All transactions have nothing to do with timing. They're, they're. Their legacy divorce health issues. You know, the the things that you're. Talking about David, so that certainly right.
Matthew Liedke
- Well, that concludes this deal makers panel. For now, I'd like to thank all of our panelists for joining me today and I hope everyone watching and learned quite a bit about this subject matter. We hope that you enjoy the rest of the deal makers, panels and good day.
Speaker 4
Hello everyone and welcome to the combination of franchise times Deal makers week. Today we have an exciting agenda. We are going to present the 11th annual franchise Times Dealmakers awards. I'm Beth Owens, senior editor. Franchise times. And it's my great pleasure every year to head up our project. In which we. Select from nominations the top deals in franchising. And the top people making them have it. I want to thank our judges who helped us select our winning deals this year and also our staff, judges who helped us in this project. At the end of this presentation, we will reveal our deal of the year. Then we will hear from a panel featuring some of these winning deal makers. So you'll want to stay tuned for that to learn how they do the deals and what they're going to do with all that new capital. With no further ado announcing the 2023 Franchise Times, Deal makers of the Year. Award winners. AT Taco entered the Taco Bell system via a 16 unit purchase from helm restaurants advised by unbridled Capital. Ampex brands bought Bella Green Holdings following all bone pans purchase a year earlier. Boxwood partners advised junking on its sale to neighborly. Plus represented sellers in more deals totaling $3.6 billion. Dine Brands Global bought Fuzzy's Taco shop for $80 million its first acquisition. Since Applebee's in 2007. In power bands formed a new umbrella company for Linx franchising and Outdoor Living Brands to integrate those recent acquisitions. Gala Capital Partners bought Rusty Taco from Inspire brands. And Dunn Brothers coffee from management. In two separate deals. His show sushi attracted Brentwood Associates and Continental grain as new investors. Own fitness attracted European Wax Center co-founder Josh Koba as minority investor and signed a number of large area developers. Stratus Building Solutions completed its first US transaction with Diversified Royalty Corp in which the seller retains 100% equity and the buyer gets 2.5% royalty on existing units. Congratulations to these nine deal makers. Of the year for 2023. And now I. Am excited to announce the franchise Times deal of the year carbonated beverage brand. Swig attracted the Larry H Miller Company, a big Utah based family office retaining savory fund and founder Nicole Tanner. As minority investors and operating partners. Congratulations to Nicole Tanner and her team and to all of our deal makers winners. We will now welcome four of these winners to dig into how they did their deals and most. Importantly, what are they going to? Do with the capital. Stay tuned. Hello, I'm Beth Ewen. Senior editor with franchise times and I'd like to introduce you to today's panel. We're talking to four of our top deal makers in our annual franchise times deal makers projects we have with us today, Nicole Tanner. She is the founder of SWIG. Hi there, Nicole.
Speaker 8
Hi, thanks for having me.
Speaker 4
We have. You bet we have, Dan Bean, the CEO of his show sushi. Hi, Dan.
Speaker 9
Great to be here.
Speaker 4
Today and we have Anand Gala who is with Gala Capital Partners, pulled out two big deals last year. Hello Anand.
Speaker 7
Hi there. Thanks for having me.
Speaker 4
And we have Doug Payne, he is the founder of Ohm Fitness, the electrifying franchise. He'll tell you all about it in just a little bit. Hi Doug, thanks for being here.
Speaker 10
Hi, thanks for having me.
Speaker 4
So let's get into it. I'm going to start with Nicole. So there you were back in St. George, UT, driving around with your five kids in the car.
Speaker 9
Looking for a little.
Speaker 4
Soda break. So tell us what happened. How did that lead to the founding of the SWIG?
Speaker 8
So I'm a mom with five and I go through Sonic a lot for my my soda fix. My drink fix because of their Styrofoam cups that would hold the the drink cold for a long part of the day and the Pebble ice. The Pebble ice was huge. The little nugget, ice. And so we go to Sonic and the the wait was long or the cups just. You know, or maybe smells. A little bit. Like onions, the experience just wasn't like, amazing. And sometimes the, you know, the customer experience wasn't great. Like, I felt like a number in there lying. I felt like I didn't matter to. And I thought there's gotta be a better way for me to get my drink fixed. And why not just do it in a drive through that is just serving drinks and then maybe add some good treats and snacks along with it so that you can get in and out pretty quickly. You're not prepping food, so the line isn't. Long and a, you know, wait. And so honestly, that was just it. I didn't see. Anybody else out there do? In it and so. I got well. Why not do it? Because I would appreciate it. As a customer. And went out and did my research and sat outside of the gas station and watched how many people walked in and out with just fountain drinks and the number was astounding. And so I'm like, OK. If they could stay in their car. And not have to go into the gas station or anywhere else to get their fountain drink then then that would be amazing for them as well because I would appreciate that as the customer not have to unbuckle all my kids and walk into the gas station and. And so yeah, that's honestly where it all started. And yeah, the rest is history. There's a lot more that goes. In after that, but yeah.
Speaker 4
We'll get to some of that later. I'll just jump to the punchline. Nicoles company just attracted a large family office in Utah as a new majority owner, about 50 restaurants today, they're about to blow it up everywhere. Right, Nicole. So we'll have you talk about that in just a moment. I want to turn to Anand. You did two big deals last year. Rusty Taco you purchased from Inspire brands and then also Dunn Brothers Coffee you purchased from management and founder. Tell us first about this round. Let's just zero in on Rusty Taco. How did that come about, and what was it like? You know, negotiating with Giant Corporation inspired.
Speaker 7
Well, thanks for asking. It really was a very interesting process in the course of I think what we do we as every investor does, develops A reputation and in this case, our reputation preceded us and we were contacted directly by the investment bank that inspire. Get hired to evaluate their options. Ultimately, I think the. The decision that Inspire came to was that they really wanted to do what was the right thing for the brand and its franchisees and its leadership team. And as they evaluated what their strengths were, they really had this brand, this concept that didn't. Ideally fit what they do under the Inspire umbrella, which tends to be brands that are multi thousand locations and this this was a brand that was approximately 35 location. And so no matter how much time and effort they gave it, it wasn't going to get to what would be their normal size brand. That really gets gets things moving for inspire, so their their focus and their desire was really to find the right. The right investment group or ownership group that would care for the brand, care for the franchisees and continue the work that the leadership team was doing and really care for that team that they had put so much time and effort into putting together. So it was, I think, a small process. I don't know how many people ultimately they reached out to, but we were one and we quickly were narrowed to the ideal party to take this on. I think INSPIRE has the things that they require in any process and it's unusual for. Inspire or work to sell a business. But again, in this case it was the right thing to do for the brand and I think ultimately the right thing to do for inspire so that they could focus on the larger brands that they are so accustomed to to running. So there it it had its normal course of negotiation, but I I'll tell you that it was not contentious. It was not. A knock down drag out. On the contrary, I found. It to be. Not necessarily enjoyable, but definitely not not difficult. You know, they were fair and reasonable people and I think they appreciated that. We took the same approach and so there were a few things that needed to be worked through, but for the most part you know it. It actually went pretty smoothly.
Speaker 4
Interesting. And I will say. For our audience, so Inspire Brands owns. Tony John's Arby's Sonic Buffalo Wild Wings they acquired Buffalo Wild Wings and got Rusty Taco along with it a while ago. And then you mentioned work capital, of course, the very large private equity firm that bought inspire brands back in the day. So thanks for telling about that. We'll get back to that brothers next round. I want to turn. To Doug Doug Kane with home fitness and there you. Were I'm going to. Echo a little bit of the coal in my question. There you were in your. Back yard last year only in Scottsdale, AZ. Trying on different suits to deliver EMS to peoples muscles while they worked out, but you tell it what is fitness all about.
Speaker 10
Sure, absolutely. So home Fitness is a wireless Electro muscle stimulation concept that delivers its product in a high energy group exercise format. And that's that's pretty novel to begin with, but within the EMS industry, it's also a direction that is is pretty novel as well. You know, historically the EMS industry has been more of a therapeutic 1 to one type of configuration whereof a physical therapist or a personal trainer. Would deliver an Electro muscle stimulation workout 21 student, potentially up to two studs. And and we love the concept. We loved learning about its history. EMS has a rich history that goes all the way back to the 1976 Montreal Games. And so there it it's a a really well researched, well documented form of of working out and physical fitness and. So we loved it. But what we didn't love when we began looking at the concept in. 20/21 was that it was a limited product. In other words, it was typically a wired suit that you would wear on top of some long John type underwear that needed to be wet down with the squirt bottle so that the EMS would work properly and and that suit had a nice big wiring harness that plugged into a laptop. And then there you were with your physical. Trainer going through kind of a methodical. 20 to 25 minute class. What I was seeing was something like a large group exercise program with great inspiring music and and a light sequence that allowed you to immerse yourself into the workout and the workouts. Only 25 minutes. Let's have a blast doing it and so we really wanted to bring that. Energy to to the concept. At the time, we were limited by the technology that was available, but we kept pushing that envelope, pushing that envelope, and we've eventually came up with a wireless suit that allowed us to check all of those boxes, high energy wireless, large group. And so once we found that suit, you're right there. We were in my backyard. Prototyping the suit, prototyping the the class structure and the curriculum design. Barking dogs running through babies. And it was it was a lot of fun and a lot of people you know. And interestingly enough, we started a prototyping one class at my house just to see if this thing would work. And then that group of people told some friends. And before you know it, as we were building studio #1, we were conducting classes 3 * A week. We had two class times per day, so it became this cult following in our own backyard. But listen, it all worked out really wonderfully. We launched our first studio in August. Of 2022 and we began selling franchises.
Speaker 4
Well, and that's such a great description and I still have to pry that your suit one of these times because I just can't quite picture that but. We'll get down there. We'll get down there sometime to try it out to.
Speaker 10
You definitely need try.
Speaker 9
It, yeah.
Speaker 4
For sure. Well, I want to turn to Dan Bean with his his show Sushi and Dan, you became CEO. In 2017, and now tell us about the franchise 2000 units and it's a turnkey sushi franchise. Describe it for us.
Speaker 9
Yeah, I tell you what, it's it's it's definitely the highlight of my professional career. Having the opportunity to to lead this company. If you ever had freshly made sushi in a non traditional location grocery store, college and University Hospital corporate campus, chances are it's one of our franchisees that serve. You sushi that day. The only thing about our business is over 90% of our franchisees are Burmese refugees. So if you think about the journey that it took for them to get to this country once they arrive for us to be able to help them live. That American dream. To help set them up in the business for themselves, but not by themselves, it's just still so reward. I did step in in September 17. Philip, the founder, had done an amazing job building the infrastructure for the business over the years. So what we? Did is we basically kind of came in and and implemented the systems and the processes to build that foundation that as we were going to accelerate growth? Things wouldn't break, so we brought in a few key new hires. We built our technology platform, we professionalized our supply chain. We're a fully integrated supply chain as well. So we're actually going direct to suppliers around. Low importing those items into one of two warehouses that we have in the US and managing that last mile delivery to the franchisees. So not only does it help to make sure that their costs are always in line, but it also makes sure that anything we sell is 100% responsibly sourced. And we've got that traceability upstream to the supplier. And downstream to the consumer. So it's a, it's a. Really, really good place. And I think the final thing we. Did that really kind of helped us move a?
Speaker 6
Little bit quicker was we looked across.
Speaker 9
The business and we took down barriers.
Speaker 6
We understood what barriers were there that they need to be the ones that didn't need to be. We just kind of eliminated and that made everybody allow to move quicker. And I'm happy to.
Speaker 9
Say we've seen some pretty great success. The last few years.
Speaker 4
But that's really interesting and I didn't know about the Burmese refugees that that makes up the majority of your franchisees before. That's really interesting, interesting fact. And and point of pride for you, it's. Like well deserved. I I want to turn to Nicole and Nicole. I kind of wanted you to Fast forward. Now you've been able to bring on the Larry H Miller Company as a majority owner. That followed an investment and management advice by Save refund. And the Andrew and Shawna Smith. Well, about bringing on GAIL Miller, who leads the Larry H Miller Fund as a majority investor. How did you 2 meet? What do you think of her and what's going to happen now because of that new relationship?
Speaker 8
Great question, Beth. Yeah, it was when it was. The deal of my. Lifetime basically until the next big deal. But this was really I. Really think the best is yet to come for swig. Honestly, everybody deserves to have a swig in their hometown. It's happiness in a cup is what we call it. It's the best part of your day, we. Are more than just a drink because it's how we make you feel when you come through our drive through line. If you don't drink soda, that's OK. We've got lots of other drinks for you. We have sparkling water. We have energy drinks, we have bobas. We have a drink for everybody. So with the partnership of Larry H Miller. And GAIL? Louise Miller, Fund and Gal and the family. It really is a family, which is what we are. We are really keen focused. If our team isn't being supported inside, the customers can feel that and so we are all focused on our team and making sure that they feel supported and. Love. That's how we grow. We don't grow without our team without a team, we don't go anywhere and that's how the Larry H Miller family and fund and GAIL, that's how they thrive. That's how they work. Is very team centered, very value centered and that's who we are. And I say we we now are have an amazing drink company but we are now a leadership company and again that fits very well with who Larry H Miller Company is as. Well, so valuing our team. And making sure that they feel our love and support and and then. That literally spills over. To our customers and with our drinks. But GAIL is such an amazing woman who cares deeply about her partners and her team, and she's very genuine, very authentic. Her philanthropy work is huge and what she does to give back to the community and. We we started our safe. The cups which is our breast cancer giving back initiative on a breast cancer survivor and so. We do that very authentically with SWIG, have for the last three years we've raised over a half $1,000,000 for women fighting breast cancer. And so that GAIL is very much fits in line with that because of her philanthropy and how she gets back. So it honestly was just like the stars aligned and they valued us. Like this amazing value, which I was like, yes, like as my baby. It deserves to have this value. But they saw the potential and they saw that swig is on the cusp of just ready just to go across the nation and the world. So they can see the. Potential and they were buying into that potential. Of who we are again, we're more. Than a drink, but. It and we need to go everywhere because everybody. Needs a swig so it fit perfectly.
Speaker 4
I I I had the opportunity to visit you, Nicole, as you know out in Salt Lake City and that's the business community in the world. Unto itself, for sure. GAIL, you told me that GAIL Miller and you? Were the former owners, former majority owners? Of the Utah Jazz, the. The 18th and you and she would sit down there and. And commit the whole time.
Speaker 8
It was so awesome. During the Jazz game, we're like, Oh yeah, there's that dump. OK. So, GAIL, tell me about what's going on. We just chatted the.
Speaker 4
Whole time ohh H Miller Company also had a huge the second largest auto dealerships chain in the country sold that within the last two years. Gold majority stake in the Utah Jazz now has a whole pile of money to invest in companies like like yours, Nicole, like Swing. So we'll we'll hear more about that in a in a. Anand, I want to turn to you and talk about your second acquisition, Dunn Brothers Coffee and how that how you always look for companies that fill a consumer need to talk about that and then how that relates also to your acquisition of Rusty.
Speaker 7
Yeah, absolutely. Thank you. So we we have identified several different categories that we would love to invest. Then it's several of which we've now accomplished. That includes Burger, Taco, pizza and coffee. And there are a few others. But primarily, we chose these categories because we think that they're ingrained in the American consumers habits and in their routine. They're they're readily accepted by everyone. It's part of their lifestyle, and in particular with Dunn Brothers Coffee. We were really intrigued by an opportunity to invest in a coffee brand that had a history that had a legacy. For high quality products that the community has really embraced for an extended period of time, it surprised me to find out that the brand had been around for 35 years and continues to realize its success and its brand strength and its loyalty amongst its consumers throughout the Twin Cities and the surrounding communities. And that got us really excited. We saw that it, they they had lots of opportunity that they had yet to tap into. In particular, they had not fully appreciated the opportunity to scale up the business and I think that the team that's there. Had done a very good job growing the business to where it is and I thought that they executed it well. We thought that it could be substantially bigger. So in our acquisition of a 60 unit brand, we actually see it as a 10X potential growth and that can be done through a variety of different vehicles, whether that's, you know, continued drive through cafe only drive through, you know and every iteration in between including non traditional locations. But then where we where we saw the real opportunity to further unlock and drive brand awareness and and really serve our customer best is. Many brands talk about Omni channel, but in coffee you can really be omnipresent. And what I mean by that is coffee is one of the very few categories that is incorporated into the life of the consumer in many different ways and many different places and that could be. At home, whether that's a K-Cup or an espresso machine, or it's simply just brewing it with a good old Mr. coffee machine at home, it could be on their way to work. It could be an afternoon break. It it you know, for a a nice pick me up. It could be an opportunity to meet with friends. And just have a cup of coffee or a cup of tea. It could be for that after school treat if if kids wanted to come in and and so it has the opportunity to be. Everywhere throughout your life and incorporate it into your life. We even see further brand extension and potentially some ice creams that are coffee flavored or other things that we may be. To impart our our high quality coffee into as an ingredient. So we think that there's an opportunity in grocery and CPG, both whole Bean and ground. We think that there's an opportunity for us to further enable and expand our e-commerce strategy. We do have a website and we do sell coffee, but we think we can do an even better job. And we think that there's an opportunity to grow the franchise footprint in particular, there are so many communities that have yet to experience Don Brothers because it really is just a strong regional in the upper Midwest. So there are so many different ways for us to unlock this brand and help it achieve its full potential. It really got us excited about this opportunity.
Speaker 4
You know, I spoke with your CEO there. I know you'd like to work with existing management teams and she, Kim, plan and she was very fired up with having your backing and being able to execute a whole bunch of exciting new things. So you've got at least one fan at. At Dunn Brothers for sure. Well, Doug, let me turn to you because and again kind of I want to Fast forward only a year for you like you know clothes company has been around for quite some time, but you brought on Josh Koba, the founder of European Wax Center. As as a minority investor also assigned him as an area developer for South Florida, you've signed a slew of area develop development agreements. It may be close to getting them all sold. I know you don't want. To hype, but. I think you said you're you're close. Tell us about the significance. Of bringing on Josh and. And your record pace in signing area developers?
Speaker 10
So I'll speak first to the the pace of development and in many ways it it, yeah, it's going very, very fast. But the story began in 20 in 2005. You know, I was the first chief technology officer of a young company here in Scottsdale, AZ. Called massage envy. And so I had a tremendous experience with that brand. And you know we we went through the acquisition with Maria and I met, I met Josh and his brother David at A at a trade show. And so myself and Dave Long decided to leave massage envy and and assist with European wax center in their, you know, humble beginnings. I think we we got involved when they had five locations and I opened up #6 here in Scottsdale and I was blessed again with being a part of that incredible. Journey and then Dave Long, the CEO of Orange Theory, is a dear friend of mine, began working on orange theory back in 2010 and 11. And again, I applied some of my IT background and experience became the area Rep and one of the first locations of the brand out here in Scottsdale, AZ again. Well along that path. I made a lot of friends, a lot of area Rep friends that you know worked at massage envy. Then they purchased European wax and then, oh, by the way, they grabbed a couple regions of orange theory. And so I've amassed, you know, a lot of really terrific, wonderful connections with people that are very, very good at what they do. And so this record growth that you're seeing is is in one part. A result of the, you know, 15 years of relationship building and and friendships and you know you placed the call early on to see if there's an interest. Not all say yes. Interested, but those that have are really, really incredible operators and we're just so proud and and you know, we feel blessed that they decided to take this. Journey with us. And then of course, Josh, entering into the brand has been super impactful, not only because of our history together, you know, as friends and also as partners. But it's a it's a source of validation and he does his research. He's a very smart guy. And so he was able to see very quickly what we saw in the brand and its applicability in the in the fitness marketplace and its potential to change the way people view what's available to them in terms of physical fitness. And so Josh has created tremendous validation. You know, Josh picks up the phone to the, to the folks in his Rolodex and. It's a very strong validation that I think so far results in 100% of them purchasing and so it's been really impactful for the brand and like I said, I think we just feel so blessed to have had the journey we've had and made these connections. Along the way.
Speaker 4
That's great, Josh, for those of you, Josh Koba, founder of European Wax Center. It went public. Last year, early 2021, the the company went public. Josh had already exited. Mostly, he retired at age 40 and at age 45, Doug owned fitness Lord and back out of retirement. So that's something, I guess for sure. Dan, I want to turn to you and talk a little bit about. Taking over from the founder of Hisho Sushi, Philip Mung and then now what you promised him and. Now as you've. Brought on a new financial backer, Brentwood Associates. You know how you feel that that's keeping those promises that that you made to the founder?
Speaker 9
Yeah, I tell you what you know. From my experience in? My career, one thing that I believe is that in founder based businesses, the people and the culture that they create over the years is lion share of the secret sauce. So I get confused a lot when I see foods that step in by a company and try to disrupt. That culture somehow impact. And what? What made it so special? So in the early days when I was sitting down talking to Phillip. About the opportunity. I promised him that I wouldn't do that. I promised him that I would protect his people, that I would protect the culture, protect the incredible business that he created, because at that point it was the most special thing that I had had seen in my career. So it is hard, right? So I mentioned you before that the majority of our folks are are from Burma, right? And they've been doing things the same way, year after year with Philip. So it was really important that they helped create the strategy and understand what role they were going to play. In the execution of that strategy. And once we got that in a decent place, we we love to call in to Jeff that can Jeff Vinnick just an amazing person out of Tampa. He's got a family office there. He was the investor that came in and bought controlling interest from from Phillip and the conversation I had with Jeff was, hey, Jeff, listen, you know I've shared a couple of times. You know, just what an incredible company this. Is, but more importantly, what the how? Incredible. The people are. We can get to where we. Need to get to, but it's just going to. Take more time. We need to be a little. Bit more patient. We need people on the side and then that pie will will eventually start going but.
Rick Ormsby
We're not going to be.
Speaker 3
Able to move as quick as we could.
Speaker 9
If we are in you. Know company called after me. And he actually was amazing. He's like, listen, he goes. We're in. This for the long haul. Make whatever decision you need to make to make. Sure, it's done. Right way. So once we have permission. Of that then. It was game on and you know, sitting here today, five years later, just couldn't be happier on how it all worked. Out, we basically retained all of the individuals. Of course, we did augment the team with a couple of specialists that we needed to come in just with the expertise, the integration was seamless and we've accomplished. Fun together, you know, as this company. Referencing to Brentwood, you know one. Of the things that. Was just it is today awesome about Brentwood, is they do what? They say they're going to do. They believe in culture and they believe in management teams, so it was basically an easy kind of transition and they support us. Each and every day and we couldn't be happy.
Speaker 4
That's great. Well, I want to turn back to Nicole again a founder. Of of swag. You approached investment in your company outside investors in your company and kind of a stair step approach, a big turning point for you was when savory savory restaurant fund came in. Can you talk about what that's like as a founder? You know, bringing on partners, what do you look for? What do you what? Do you avoid? What have you kind of learned along the way and and how how tough? Is that for? You as a founder now with majority ownership, not in your hands.
Speaker 8
Yeah, I think a lot of times founders can get in their own way of growth for their business because they don't want to give. Over that control. They think that they've been doing it a certain way for so long, but if it's not broke, don't fix it. You don't need to fix it, but there's always. Better ideas out there and always. More help so.
Speaker
As we were.
Speaker 8
Growing about the year, we started in April 2010, so our birthday was Sunday. We were thirteen years old. And we started growing and by about 2015, five years later. There was a lot of competition. That we're doing exactly what we. We're doing and we thought, OK, we need to franchise this is, you know, eight years ago because everybody else is like taking space that we want. And I just didn't feel good about it. I know that if you're not ready for franchising, it can destroy your brand. And because SWIG is like my 6th baby, I wanted to protect it. And so we put a. Pause on it, a hard pause and. I just kept praying for the. Right. Partner to come around that I could trust that. Would that would help? Partner and and take SWIG to where it needed to go and about a year and a half later, Edna Andrew and Shawna Smith through a friend and immediately. Found that partner. It just felt so right. He same thing. Dan was like, I don't want to change anything about swig. What you've created is amazing. I just want to help you and help increase that value and help you get to where you want to go. And so they wanted the founders very involved still, which I. Think is so. Crucial and so. So when we partnered with savoury in 2017, they came in and took on a lot of the heavy lifting from HR to accounting to site development payroll like a bunch of that stuff that is part. Of the business, but. It maybe isn't the fun part of the business. So they were able to because they. Had the experience to come in and go, let me take that off your shoulders and we've done it. We're good at it. We can take it. From here, so that was. Really great. And he's like Nicole, what do you want to do? Which I thought was so great for him. He's like, OK, now that we're taking this off, what do you want to do, Nicole? What's something that you ever want to get back to? And I said, and how great did he ask me that? I said I want to get back to the base of it all. I want to get back. To the customers and the team. So I want to get back into the stores. With our team and our customers and so. That's what I've been. Doing other stuff too, but that's. A big part of my focus. So very smart on his part. Finding that right partner that values your business and you as a person and what you've done so far is huge because they don't want to change it, do they just want to help? Help increase the value and help you get to where you want to go. So and then with Larry Miller coming into play five years later. To where where? This tipping point of, you know, we're at 50 stores, we open our 50th next week and turning on franchising, we're now ready for it. We have the systems in place. We have the training in place, we have the team in place with Larry H Miller's help. Now. They'll take us to the next level of now franchising. So it's been very interesting and amazing to see these tipping points of like, OK, Now we need this restaurant experience. We are at 16 stores. It's a very it's a tipping point of like, I'm not giving the stores at that time the attention they needed or the love that they needed. So they came in and helped me with that. And now we're at the point. Where we're like. We're going to need help with this franchising at, you know, road and so Larry H Miller is going to come in with the financing and and some help on that end as well. So finding that right partner is crucial.
Speaker 4
That's freaking Shauna Smith is the CEO of Savory management company. I also talked with her out at Salt Lake City, at her headquarters, and she's just a guru of operations and and helped build the company. There's 10. Slavery has. Bought 10 brands. Swig is the first one that has now been sold to a new partner and is starting franchising and The Smiths Plan to do that with their nine other brands as well.
Speaker 8
That's their platform. That's their plan. That's a great, great plan.
Speaker 4
Yeah, Anand, I wanted to ask you. You of course are a multi unit franchisee by background in a number of systems. jack-in-the-box Applebee's Del Taco, famous Daves. I think I'm including many of them. You bring a certain philosophy to now your your new life. Five years ago you started Gala Capital Partners to invest in other brands. Tell us about that. It's an operations focus and it's also using your own capital focus.
Speaker 7
Absolutely the oath.
Speaker 9
Got it.
Speaker 7
So all of the investments we've made, we've made with all equity, no debt, which is maybe a little different than the traditional investment firm or private equity firm. Another difference for us is that we don't have the need to sell a business over some period of time. That doesn't mean that we won't sell the business, but we want to make sure, as Nicole referenced that we do and Daniel reference that we do what's right for the business to build a great sustainable business over a long period of time. And so we think that the absence of debt and and that that horizon or the lack thereof, the flexibility we can provide in ownership. Can give them and give the management team and the brand what it needs to really grow into its in into its own. That being said. The philosophy that we approach with having spent 35 plus years as a franchisee across many brands, QSR, fast casual casual dining, etc. Intra is. We've had many, many experiences and we've lived through many cycles. Those in which it was the golden era of franchising or of that brand and and then there were challenging times as well. In some cases we saw franchisors that truly acted with the spirit of partnership, not just the words. But they actually acted that way. Their behaviors were were reflective of that. And we've had situations where that was not. Case in all of those experiences, the common thread that led to very successful businesses and growth of a brand was when the franchisor truly saw and appreciated the franchisee as their customer and understood that the success of the. Franchisee, ultimately was the success of the franchise. And so we, we see many smaller brands that on occasion get into franchising maybe before they fully understand that philosophy or have the ability to affect that philosophy. And they make choices sometimes because they need to, sometimes because they don't know any better that are counterproductive to really executing that strategy. And that philosophy and that's where we can come in and help to realign both founders, owners, management teams. Back to that philosophy. To really help a brand flourish. Now, that doesn't mean that we do everything that a franchisee asks. I think a franchisee having been one for many, many years across many brands is really looking for a franchisor that has a very clear strategy and then has the resources it needs to execute that strategy. And that strategy is aligned. With helping the franchisees grow, be successful and be profitable. That they're going to continue to reinvest in the brand. So that philosophy is something that we either implement or strengthen in each and every brand that we get involved in that have led to a lot of collaboration and alignment with our franchisees and and those that you know. Maybe have a different agenda or a personal agenda. They realize that, you know, we're really in it for everybody. This is a team and we win as a team rather than as the individual, and so you know, hopefully they they come around most of the most every time they have and you know we've we've recognized situations where maybe franchisees have not been treated well and we've we've rectified those situations or we provided concessions. If we think that's what's necessary, again, it's how do we make sure that we are doing what we can for the long term success of the franchisees. So that's the. Philosophical approach that we take with every single brand we get involved in.
Speaker 4
Oh, that's interesting. And I should say some two of your other acquisitions in addition to Rusty Taco and and Doug Brothers Coffee are CiCi's Pizza and Mya's burger fries and shakes. That was your first one, wasn't it? The whole new whole new world for you for sure?
Speaker 7
Yes it will.
Speaker 4
Thank you for that, Doug. I want to go back to you. You've had a lot of success very early on starting the company only last summer, a lot of area development agreements signed and then you know what annoying reporters like me asked next is. How are you going to grow against? Or how are? You going to guard against growth? That's too fast. How are you going to get all of those sold deals open in a timely way, especially in light of real estate? Shortage, inflationary times, bank failures. Right, you name it. How do you approach that? Being on top of a fast growth rate? Like home fit.
Speaker 10
Thanks for that. These are crazy times, there's no doubt about it, but you know to kind of echo what Anon said, we're in this with our partners and that's what we view them as is our area Rep partners. We're in this together. And so while it's important that we get to scale. Quickly we have to balance that with the realities of the marketplace. So whether it's a real estate conversation or a lending conversation we're in, we're in concert and cooperation with our partners out there to make sure that there's a balance with the pressure to develop, but also understanding the realities in the marketplace. And so our development. Schedules that you'll see reflect that there's there's enough gas on the pedal to get us the growth that we think is required for the brand, but we're not creating undue stress with our partners, unrealistically so. I think common sense prevails and we've got a very cool head with our partners out there in the field as they begin to develop. And then secondly, I'd say, you know from a real estate standpoint, we're leveraging some pretty interesting technology that allows us to maybe challenge our own thinking of what an A center is. You know we are, we've got a model that you see the massage. Maybe it's next to a European wax next to an orange theory, and that's got to be the center where where you deploy. Well, what we're seeing with some of the new data models that. Are coming out that. We can understand traffic patterns a little bit more clearly than we could 5610 years ago. So we can identify where people move from center to center and where those traffic patterns flow. And so there may be a center 1/4 mile up the street. From what you thought. Was your ideal location that sees about 60% of the same people plus other folks. Coming in from other areas. So we're we're leveraging technology to make more informed. Decision around decisions around real estate. That kind of challenge our traditional thinking. So I'm I'm putting forth to you that we think that the real estate crunch isn't as tight as we might think when we leverage these new technologies.
Speaker 4
I want to ask Dan. A little bit about. You talked about the family office that formerly purchased. We show sushi now you brought in Brentwood Associates a much different type of an investor. What do you see? Brentwood being able to do their resource, how are you going to deploy those resources? You know to to further grow your brand. What what's ahead with their back end?
Speaker 9
Yeah, so it's. Interesting with with our process. So we we started our process November 21 close. The deal may of 21 and when we went out we had 50 companies that wanted the book, right. So you can imagine how many management presentations there were in that in that short period of time. You know, Brevard is one of the first. Companies that we met with. And from the time we left that first meeting, we were having our fingers crossed, so they were. Going to be left, you know. Kind of standing at. In the end, I think when you look at the relationships that they they have again, whether that's data sciences or supply chain experts or the ability to make key introductions to different retail partners for us, they've already made a material difference in, in the business. And then you add kind of an extension of that even more. Of them bringing continental grain alongside, it is just a formidable partnership group that we are blessed to have. So we're going to make some key investments in infrastructure. As you can. Imagine with the growth that we've seen, we're not the same company that we were even just. Two years ago. So we need to make sure they're setting ourselves up for. Success for the next three to five. Years and burning and cutting our branding. Every step of the way to to do just that. So again, we couldn't be happier from where we sit without that transaction and kind of concluded in the 1st 11. Months we've been in this.
Speaker
That's great.
Speaker 4
Well, we're getting close to the end of our time together and I thank you all so much for speaking with me. I'm going to do one last lightning round here. Ask each of you in turn, starting with Nicole, this question paint a picture for me five years from now. We are. I'm catching up with all of you finding out what's happened with your companies. What does wig look like? Probably five years from?
Speaker 8
Ohh goodness, I see amazing things for swig as we turn our franchise and it's it's always like hard to guess what that will look like, but I have a good picture because living getting franchise request for years and we just weren't ready for it yet. Now that it's on we have over 200. Signed already within a two-month period with more just waiting to get in, getting them opened will be, you know, a learning curve for us, but I imagine by five years.
Matthew Liedke
There will be.
Speaker 8
Swigs across the nation, the first set of franchisees are in Florida and Tennessee and Arkansas, and a bunch more in Texas and Idaho. And so I just really see him five years. Good heavens there. There's going to be swags dotting the United States. I just know it. Because of turning on this franchising, they are going. To be our partner. And I love that phrase of they are partners. They are a team, and I want our franchisees to feel like like I'm right there with and I will be. I'll come open stores with you, but I I want them to feel like they are in partnership with us so they feel that support. But with that we will have stores across the United States. Because it's it's something that everybody will learn. What is swig and it's going to become. The best part of? Everybody's day because it's more than that drink. It's how you feel in that drive through line. It's the best part of your day, so. I can't. Wait to spread that across the United States and maybe even the world, but. In five years, we have 50 stores now. I anticipate that we will have, you know, 500 stores by then, which to me is like, WOW, I just hoped 1 store would work, you know, 13 years ago, so to say 500 stores, it's definitely not even a long shot now like it. It's it could happen and it will happen.
Speaker 4
That's a great story. Thank you for that.
Speaker 8
Thank you.
Speaker 4
On on what you picture, call it Capital Partners is is doing what in five.
Speaker 7
Well, I think that we continue to invest in, acquire and enable emerging adolescent brands to really come into their own and and help brands become what they're supposed to become. I think as it relates to Rusty, we would. Love to have? A rusty Taco in as many communities as possible. We think that there's a very high there's a very high need for a high quality local neighborhood Taco joint. I think tacos are one of the. The trends that you're going to see continue to grow throughout the next 10/15/20 years and I think that you know Rusty is one of those brands that can really ride that wave and deliver on the customers expectations if not really beat them. And then as it relates to done, you know again this is. Some of the freshest coffee, some of the highest quality coffee you'll ever find, and we'd love to bring that to as many neighborhoods as possible. We'd love to. Bring that to as many consumers, in whatever way is most convenient. For them, whether. That's in their home, in the drive through at a cafe. You know, at at an airport hopefully or or university. So we we think that there's just tremendous opportunity while the large brands have become a sea of sameness. We think that niche brands can really deliver an outstanding experience to the.
Speaker 4
Thank you so much for that. Tell us about what own fitness looks like.
Speaker 10
As we as we look five years into the future, I'll speak first to this conversation of fitness. You know, we believe that in five years we will have helped reshape the way people think about fitness and what's available to them in this in this cluttered fitness space, an average fitness enthusiast right now spends 5. Or more hours per week working on their health. We can deliver the same results in 75 minutes per week, and So what we produce is time available time. And so we challenge people to have a conversation about what they would do with the extra time, feeling better along the way. And So what that looks like behind the consumer story is that we're well north of 500 open locations and we've got a network of. Of happy healthy. You know, wealthy franchisees in area reps, that's the goal, right? We want this to hit on all cylinders for everybody.
Speaker 4
Sounds good to me for sure. Congratulations on home fitness so far. Tell us about about he he shows sushi. What do you see in the future? For your brand.
Speaker 9
Yeah. No, no, thanks. You know, when you look at sushi here in the United States, we're probably only in the third inning. So when you think about the amount of of the white space, the growing foundation of sushi consumers year after year, just getting larger and larger, the fact that it's on trend, the fact that we're more kind of grab and go convenient than than a lot of things out there. It's going to be. An incredible rod. So I think through organic growth through consolidation in the industry, I think that we're going to have a global footprint and that usually will be synonymous with sushi in five years.
Speaker 4
Sounds good to me. Thank you all so much. I really appreciate your talking with us today and thank you to all of our attendees of deal makers week. This is our final show and and best of luck to all of you going forward. I'm Beth Ewen with franchise times and. That's a wrap for deal Makers Week 2023.