Michael Esposito worked for Goldman Sachs for nearly three decades, the last 20 years as a partner for the global investment giant in New York City. But, as he tells it, it was not until he became a franchise operator and investor that he found another passion and began the next chapter of his professional career.
“Franchising is a great business model, and especially a great model for business ownership and for investing,” said Esposito, founder and co-managing partner at Franchise Equity Partners. The firm is co-managed by Scott Romanoff, another Goldman Sachs alum.
The firm recently acquired Rapp Operations, a Neighborly franchise operator with three Precision Garage Door Service locations, in Clearwater, Florida, Columbus, Ohio, and Oklahoma City.
Franchise Equity rebranded Rapp Operations as Reliable Residential HoldCo, said Esposito.
Terms of the transaction were not disclosed. Esposito told Franchise Times that as part of the deal, his New York City-based private investment firm also agreed to open a Precision Garage Door location in Tulsa, Oklahoma.
Esposito said Franchise Equity Partners was determined to buy into Neighborly’s lineup of 30-plus home service brands after conducting an internal study of the home services industry and the franchisor. The firm then quickly zeroed in on Precision Garage Door, which has more than 100 locations nationwide.
“About a year ago we started studying residential services as an industry, and by our estimates it’s an industry with $350 billion in revenue, which is, quite frankly, probably bigger than the fast-food sector,” Esposito said. “It’s an industry that is growing more quickly than the GDP because an increasing amount of people are outsourcing their services now. It’s gone from a do-it-yourself mentality to do-it-for-me mentality.
“We were also very impressed with Neighborly’s strong brand identity and how their brands have a white-glove service approach as opposed to a price cutting kind of approach,” Esposito continued. “We looked at a bunch of franchisors in this space before landing on Neighborly and Precision Garage Door.”
Esposito co-owns five Jersey Mike’s stores in the Cape Cod, Massachusetts, area with his brother-in-law and credits that experience for the inspiration to make franchise investment a full-time job.
This is Franchise Equity’s eighth investment deal since launching in October 2021. It is also the firm’s first majority ownership transaction in franchising.
Last October, the firm—which Esposito said has access to $1 billion in capital—made a $70 million minority investment in Georgica Auto Holdings, which owns more than a dozen auto dealerships in the Northeast. Franchise Equity Partners also has a minority stake in another multi-auto brand dealership platform in the Carolinas and Virginia.
His 25-employee firm has so far invested about $400 million in franchise brands, including two in the QSR space. One is Pacific Bells, a large Taco Bell franchisee ; the other is Fresh Dining Concepts, the largest Focus Brands franchisee.
“We’re very different than your typical private equity firm. For one thing, we have a very focused mandate in investing in franchise-related businesses and we focus on the verticals of restaurants, auto dealers, heavy equipment dealers, beverage distributors and other consumer business services,” Esposito said. “Typically, we’ll do that through a passive vehicle of investing where we don’t take control over all day-to-day decisions.”
Esposito said there are no plans to make leadership changes at Reliable Residential HoldCo as its three locations were all performing well under current management. The firm is adding Tim Miller, an executive with more than 20 years of experience in franchise services, as non-executive chairman at Reliable Residential.
Neighborly, which acquired Precision Garage Door in 2020, is excited to partner with a private investment firm that has the capital and industry expertise to grow one of its largest brands, interim CEO Jon Shell said.
“The investment being made by FEP to acquire our largest franchisee within one of our largest brands reaffirms the strength of our system and growth potential across our entire Neighborly portfolio,” Shell said in a statement.
Esposito said his firm is interested in investing in other opportunities within Neighborly.
“They are a great company that does a great job of having their brands work together to help each other grow,” Esposito said. “Right now, our focus will be on Precision Garage Door and opportunities to grow in the Southeast— Georgia, Alabama, Louisiana, Texas and clearly Florida. But we’ve also got our feelers out about other potential sales with other brands within the Neighborly system to go after.”