Why private equity is buying restaurant franchisees

Group 1 - Franchise Equity Partners acquired a majority stake in 7 Brew's second-largest franchisee, while Eyas Capital bought Bojangles' largest franchisee, indicating active M&A activity in the restaurant sector [1] - The M&A market has seen an uptick this year, with successful restaurant franchisees being a notable exception, although it has not yet returned to the levels seen in 2021 [2] - The acquisitions reflect a shift in the private equity market, where restaurant franchisors are typically the target of investment rather than franchisees, driven by improved economics and lower interest rates [3] Group 2 - Private equity firms are attracted to franchise portfolios due to three distinct paths to value creation: organic growth, expansion, and acquisition [4] - These firms are often more sophisticated than family-owned franchisees, enabling them to enhance profits through operational improvements, cost control, and streamlined management [5] - Private equity firms have greater access to capital compared to individuals and families, allowing them to leverage various financial instruments to finance growth [6] Group 3 - The ability of private equity firms to capitalize on steady cash flows from franchises allows them to take on more debt for financing growth, utilizing franchise development agreements for rapid expansion [7] - Purchasing restaurant franchise portfolios instead of entire brands provides ongoing investment opportunities, often starting with a small initial purchase and acquiring additional franchises over time [8]