Unleashed Brands Chief Growth Officer Josh Wall discusses how Unleashed Brands is investing in kids through mergers and acquisitions.
For almost the past decade, the market has witnessed strong interest in the acquisition of companies that own and operate franchise systems. Now, consolidation and the growth of platform companies are on the rise with nearly 2/3 of franchise brand acquisitions in 2021 associated with the creation of new or buying existing platform companies. This is compared to about 50% in 2020 and 44% in 2019.
In 2021, Urban Air Adventure Park joined the club by forming a new platform company—Unleashed Brands— aimed to acquire more brands that allow kids to learn, play and grow. The creation of Unleashed Brands and the acquisition of Snapology, The Little Gym, and Premier Martial Arts, provides founders access to other thought leaders in the children’s enrichment franchise space. It also allows management teams and franchisees the ability to leverage support and dedicated resources such as world-class marketing strategy, integrated supply chain and market development expertise.
In the United States, only 16 percent of franchises have more than 100 units making this milestone one that few achieve. The support and expertise of a platform company allow franchise businesses to reach heights they could not have done alone.
It Has to Be the Right Fit to Make It Work
In working with entrepreneurs, a one-size-fits-all approach does not exist. Transactions are as varied as the entrepreneurs who run these companies. Discussions should always start with an open and honest conversation to understand where the company is at now and where they want to go. Questions like, where is your business today? Where would you like your business to be in 5 – 10 – 15 years? What are your value expectations? What does your organizational chart look like? Have you met your personal goals and what would it mean for you to have a full team of franchise professionals surround you to support your vision?
You need to truly understand the motivation behind a potential sale, the founder’s vision, and what synergies exist between the two parties. If it’s not the right culture fit, there could be long-term issues that slow down the potential growth of the company. There needs to be alignment. I often say, “when two parties in the same house have different visions, then you have division.” It’s imperative that we have the same vision for the long-term growth of the brand when going into an operating partnership.
The Discovery and Diligence Process
Once the franchisor’s objectives and goals are clarified, it is important to determine the company’s value and analyze the current market value/risk drivers. An initial valuation will create a baseline against which to compare future valuations and company progress. In any merger or sale the seller must provide accurate financial documents to the potential buyer including full financial statements, cashflow statements, organizational structure, employees census, management briefings, stock option plans and agreements and other corporate filings and reports.
Following a nine-step M&A process, Unleashed Brands looks for companies that have:
- Strong unit-level economics
- A royalty self-sufficient franchisor
- Meaningful white space for future unit growth
- Product and/or service excellence that makes the brand a leader in its space
- High franchisee and consumer satisfaction
Each party must know what they value most in the transaction and be able to communicate that during the process.
Growing Together While Not Alone
Prominent private equity firms have proven that investments in franchises can be profitable with some firms owning over 30 franchise brands. Additionally, there are over 250 private equity firms that have invested in franchising or are actively looking to do so. There is certainly investor demand in the marketplace today with the key beginning interest level for most private equity investors at $3-5 million of EBITDA. There is even more interest directed at systems with EBITDA of over $10 million.
A strength of Unleashed and some platform companies is we have the resources that traditional private equity has. We can get to market values for great brands, great founders, and great management teams. But what we have that private equity doesn’t have, is the platform. Selling to Private Equity may give franchisors the resources to build out their team and processes, but it will still take considerable time and effort. Our processes and experience allow brands to shorten those timeframes and create value faster.
The key characteristics of a platform company are strong and experienced management, top players in their industry and well-defined systems. Each brand maintains its own core values and identity while having more resources and support to serve its franchisees and customers. Just like franchisors tell franchisees that they joined a franchise system so they didn’t have to go at it alone, the same can be said for franchisors who are exploring joining a platform company.
Unleashed Brands is currently the #1 franchising platform serving families through brands that help kids learn, play, and grow; and is poised for growth expecting 3-5 brands to join the platform in 2022.
