Private equity’s appetite for franchise systems has become one of the defining stories in franchising over the past decade. Hardly a month passes without a headline announcing that a well-known brand has changed hands — not to a strategic competitor, but to a financial sponsor with billions in “dry powder” and a well-worn playbook for extracting value. Roark Capital’s acquisition of Subway for approximately $9.6 billion, and its subsequent purchase of a majority stake in Dave’s Hot Chicken; Blackstone’s roughly $8 billion (including debt) acquisition of Jersey Mike’s Subs in late 2024; KKR’s purchase of Nothing Bundt Cakes; Transom Capital’s acquisition of WellBiz Brands; and Main Post Partners’ acquisition of senior-care franchisor HomeWell are only a sampling. The trend extends beyond the franchisor level as well, with sponsors such as Eyas Capital and Franchise Equity Partners acquiring the largest franchisees of brands like Bojangles’ and 7 Brew, respectively. Global private equity investment in restaurant franchising alone reportedly doubled in 2025, and industry observers have described deal volume in 2026 as accelerating sharply.
For franchisors and large multi-unit franchisees, this wave of activity is not simply a business-page curiosity. It represents a distinct and increasingly important area of practice — one that intersects M&A, regulatory compliance, and the peculiar relational dynamics that only exist in franchising. This post examines why private equity firms are drawn to franchisors (as opposed to, or in addition to, large multi-unit franchisees), how they structure and price these acquisitions, and why competent franchise counsel is indispensable to getting the deal right.
Why Franchisors? The Strategic Calculus
Private equity firms evaluating whether to acquire a franchisor, a large multi-unit franchisee, or both, are driven by several overlapping motivations.
Recurring, asset-light cash flow. Franchisors generate royalty and fee income — typically a percentage of franchisee gross sales — without bearing the capital costs of real estate, buildout, and staffing that franchisees absorb. This asset-light model, combined with the multi-year, non-cancelable nature of franchise agreements, produces the kind of predictable, contractually secured cash flow that private equity underwriting loves. Once the acquisition price has been recouped (whether through refinancing, dividend recapitalization, or simply the passage of time), continuing EBITDA becomes highly accretive to the sponsor’s overall return, since the marginal cost of servicing an established franchise system is relatively low compared to the royalty stream it throws off.
Elimination of competition and platform consolidation. Some acquisitions are motivated less by the isolated value of the target than by the value created by removing it as a competitor to a portfolio company the sponsor already owns, or by combining it with other brands to create a multi-brand platform with shared back-office infrastructure, purchasing power, and cross-marketing opportunities. Multi-brand consolidators — several of them themselves private equity-backed — have used this logic repeatedly to build diversified platforms out of what were once freestanding, single-brand franchisors.
Adding a distribution network to an existing portfolio company. A sponsor that already owns a company — franchised or not — may acquire a franchisor to obtain an established distribution network through which to introduce a new product or service line, or to diversify into a secondary distribution channel that reduces the portfolio company’s dependence on its original business. In this scenario, the franchisor acquisition is valued as much for the network of committed, capitalized local operators it delivers as for the franchisor’s own standalone financials.
Optimized, sometimes leveraged, use of investor capital. Ultimately, many of these acquisitions come down to a straightforward capital allocation decision: the sponsor believes it can deploy its investors’ funds — often with meaningful leverage — into a franchise platform and generate a risk-adjusted return superior to other available uses of that capital. The franchise model’s licensing structure, in which franchisees fund unit-level growth, allows a sponsor to accelerate expansion without matching capital contributions of its own, amplifying returns on the equity actually invested.
The Exit Is Always the Point
It is worth stating plainly what every experienced franchise practitioner already knows: private equity acquisitions of franchisors are almost never intended as permanent holds. The acquiror’s underwriting, from day one, assumes an exit — whether an initial public offering, a sale to a strategic acquiror, or a sale to another financial sponsor — typically within a three-to-seven-year window. The intervening period is spent streamlining operations, expanding the franchised footprint, creating cost and marketing synergies (particularly where the brand is folded into a multi-brand platform), and introducing new products, services, technology, or capital that the prior ownership could not or did not provide. The hoped-for result is that the franchisor is sold or taken public at a materially higher multiple than the sponsor paid, yielding an outsized return on the equity actually committed. Everything the sponsor does post-closing — including its diligence-informed integration plan — is calibrated with that eventual exit in mind.
Due Diligence: Where Franchise Counsel Earns Their Keep
Every acquisition of scale involves rigorous due diligence, and franchisor acquisitions are no exception. But acquiring a franchisor requires diligence of a fundamentally different character than diligence on an ordinary operating company, and this is where the involvement of experienced franchise counsel — as distinct from generalist M&A counsel — becomes not merely helpful but essential.
Said candidly, and without the slightest intention of disparaging our colleagues in the broader corporate / M&A bar, it is very often the case that the nation’s most sophisticated M&A attorneys have little or no meaningful background in the structures, customs, and unwritten norms of franchising. They may be entirely capable of running a standard diligence process, negotiating representations and warranties, and structuring a purchase agreement — yet be unequipped to assess how the target’s franchise network actually developed and evolved over time, how that history will bear on the network’s future profitability, what franchisor-franchisee political dynamics are simmering beneath the surface, or how the transaction itself — simply by closing — may alter those dynamics and affect the network’s forward performance.
This is because a franchisor acquisition has a party at the table that does not exist in an ordinary corporate acquisition: the target’s franchisee population. Franchisees are not merely customers, vendors, or employees who can be evaluated through financial statements and contracts. They are independent business owners bound to the franchisor through long-term agreements, often for a decade or more, whose cooperation, morale, and continued investment in their businesses are essential to the value the acquiror believes it is purchasing. A franchisee base that is disengaged, distrustful, or actively organizing against franchisor policies represents a very different acquisition than one with an engaged, well-capitalized, growth-oriented franchisee community — even where the franchisor’s financial statements look identical on paper.
Assessing that franchisee population is a genuinely strange diligence exercise. It requires, in effect, taking the temperature of a constituency that must never learn it is being examined. Premature knowledge that a sale is pending can trigger exactly the disruption the acquiror is trying to avoid — franchisee anxiety, accelerated departures, slowed development, or organized resistance through franchisee associations. Skilled franchise counsel must therefore assess franchisee sentiment, system health, and litigation or complaint history through indirect means: review of franchisee association communications and governance documents, analysis of default and termination histories, review of state registration and renewal filings and any related disclosures, assessment of encroachment and territorial disputes, review of item 20 and item 3 disclosures in the Franchise Disclosure Document across several years to spot turnover and litigation trends, and careful reading of the pattern (not merely the existence) of franchisee complaints. This is a fundamentally more amorphous and subjective undertaking than reviewing audited financials, and it is precisely the sort of analysis that generalist M&A counsel, however capable, is typically not equipped to perform.
Structuring and Pricing the Deal
Partial acquisition of equity. Private equity acquisitions of franchisors are frequently structured so that the sponsor does not pay the entire purchase price, or acquire the entire company, at closing. It is common for the sponsor to initially acquire roughly 70% to 80% of the franchisor’s equity, with the remainder either purchased later (often pursuant to a put/call mechanism tied to future performance) or retained by the original owner or management team as a rollover equity stake. This structure aligns incentives during the transition period, keeps legacy management economically invested in the system’s continued success, and can ease the tax and financing burden of the transaction.
Pricing methodologies. There is no single accepted method for pricing a franchisor acquisition, and each of several recognized approaches has its own legitimacy depending on the target’s industry and financial profile:
- A multiple of gross revenues, more common for early-stage or high-growth systems where profitability is not yet stabilized.
- A multiple of LTM (last twelve months) earnings per share, more typical where the target is a public or quasi-public company with an established earnings history.
- RevPAR (revenue per available room), the standard barometer in the hotel and lodging segment, where per-room performance is a more reliable indicator of system health than aggregate revenue.
- A multiple of LTM cash flow, used where cash generation, rather than reported earnings, best reflects the business’s economics.
- Book value, infrequently used given how poorly it captures the value of an asset-light franchise system, but occasionally relevant where the target holds substantial owned real estate or hard assets.
- Comparable transactions, benchmarking the deal against recent sales of similarly situated systems.
- Triangulation, in which several of the above methodologies are used together to test and validate a proposed price, rather than relying on any single metric in isolation.
By far the most commonly used metric, in franchise acquisitions as in M&A generally, is a multiple of the target’s LTM EBITDA. What multiple a sponsor is willing to pay is a central subject of negotiation and fluctuates with the broader economic and financing environment — availability and cost of acquisition debt, prevailing interest rates, and the general appetite of the private equity market for the target’s sector all bear directly on where that multiple lands.
Purchase price adjustments. The headline multiple is rarely the final number. Buyers typically negotiate downward adjustments (or upward, in the seller’s favor) for items such as net working capital variances from an agreed target, indebtedness and transaction expenses deducted from enterprise value to reach equity value, non-recurring or non-operating items excluded from adjusted EBITDA, and known contingent liabilities, including pending franchisee litigation or regulatory exposure uncovered in diligence.
Holdbacks and escrows. It is standard for a meaningful portion of the purchase price to be held back or placed in escrow post-closing, typically for twelve to eighteen months. This serves two related purposes: first, it secures the seller’s indemnification obligations for breaches of representations and warranties discovered after closing; and second, in many franchise deals, it is tied to the target’s actual post-closing economic performance, protecting the buyer against the risk that pre-closing financial representations do not hold up once the sponsor is operating the system. Earnout provisions, tied to development milestones, royalty growth, or franchisee retention rates, serve a similar risk-allocation function.
Currency considerations in cross-border deals. Where the target franchise system operates internationally, currency fluctuation adds a further layer of complexity to pricing. The letter of intent or pricing memorandum must specify precisely how currency movements between signing and closing will be handled — whether through a fixed exchange rate locked at signing, a collar mechanism that adjusts price only outside a specified band of currency movement, hedging arrangements procured by either party, or a true-up mechanism calculated at closing. Absent clear, carefully negotiated language on this point, currency volatility between letter of intent and closing can materially — and unexpectedly — shift the economics of the deal for either side.
Conclusion
Private equity’s continued and accelerating interest in franchise systems shows no sign of abating. For franchisors considering a sale, and for the private equity firms pursuing them, the transaction’s success depends not only on getting the price and structure right, but on truly understanding what is being bought: a network of independent business relationships, built and maintained over years, that cannot be fully captured in a balance sheet. That is precisely the diligence that experienced franchise counsel is uniquely positioned to provide.
This post is provided for general informational purposes and does not constitute legal advice. For guidance on a specific transaction, please contact Kaufmann Gildin & Robbins LLP. If you would like counsel any franchise legal issues or situations, including acquisitions or sales, contact us to see if we can help. Call David B. Ramsey, Esq. at 212-705-0816 or email [email protected].
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