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Unbridled Capital

Re-Franchising

Video

03.15.2017

In recent years, most franchisors of legacy concepts owned 15-20% of their total locations. This was actually a reduction from the 90’s, when many franchisors were buying back franchises in order to increase their span of control and ownership at the corporate level.

Fast forward to the current environment today, and Wall Street and investors alike favor the asset-lite franchisor model.

Hey, this is Rick Ormsby at Unbridled Capital. Today I'd like to talk a little bit about refranchising in the restaurant industry. Over the years, franchisees because of oftentimes pressure from the street, but also return on their invested capital, had been the beneficiary of franchisors wanting to reduce their unit counts, to get to model, in many cases, of 5% or less corporate ownership. And this is especially true for the legacy brands, many of which are publicly traded.

10 to 15 to 20 years ago, as an example, some of these legacy brands might've had 20% corporate ownership. And if that was 5,000 units across the country, they may have owned 1,000 and franchisees might've owned 4,000. In today's model most of the franchisors want to own two or three hundred of these stores and they want to refranchise or sell the rest of the corporate stores to franchisees.

And the reason is really several reasons. One is they feel like they want to protect their investment. It's an easy franchising model to just collect franchises and royalty fees against the franchisees and provide some administration. It's much more profitable model. But also franchisees have typically been better at operating the stores in the individual geographies then the franchisors have been on a national basis anyway.

Over the course of the next year or two, you'll continue to see a refranchising campaign across many of the major franchise brands that haven't already gotten to the 2 or 3% corporate ownership model. And what that means for you is that we're going to be seeing several brands having high deal flow across many areas of the country. And that will give you opportunity, if, let's say you're interested in the Taco Bell or Pizza Hut brand as just two examples, to look at deals in many different geographies of larger sizes, typically 20 or 30 or 40 restaurants or more, to give you an opportunity for potential investment.

These opportunities are ripe for private equity firms, private investors, large franchisees who already have a lot of units, and also family offices that have capital that they want to deploy into the restaurant space. And we have just a load of relationships with franchisors, given my background with Yum! Brands and other franchising companies as well, to help buyers, operators, and investors step through the process of understanding how to get plugged in to corporate refranchise packages across the country when the time comes. And if you have any questions, I'd be honored to talk with you about it.