Multi-concept platform companies and private equity firms are leading a flurry of M&A activity across the franchised home services and wellness/lifestyle segments, with many layers to consider in dealmaking.
During day two of Dealmakers Week Tuesday, April 26, Franchise Times Editor Laura Michaels was joined by Patrick Galleher of Boxwood Partners, Andrew Kaminsky of Franchise Group Inc., Hagan Kappler of Threshold Brands and Jamie Weeks of Honors Holdings. With experience in industries ranging from home improvement to wellness, each panelist gave their take on deal flow, valuations and more.
From the perspective of selling a company, Weeks, who’s CEO of Honors Holding, said the No. 1 priority is organizing the information of one’s company.
“If you think you’re going to exit in the next 12 to 18 months, start a data room right now,” Weeks said. “Start building that and adding all of your information and KPIs. You can get it organized later, but having all that information in one spot will save you a lot of time and get you organized quickly.”
Honors Holding is the largest franchisee of Orangetheory Fitness, with more than 135 studios, and in 2017 brought in majority equity partner Prospect Hill Growth Partners. Week and the private equity firm partnered again recently to form Legacy Franchise Concepts with plans to launch a franchise program for infrared sauna concept SweatHouz and continue to develop dog daycare brand Dogtopia as a franchisee.
Honors Holdings CEO Jamie Weeks
In response to a question about the buying side of deals, Kaminsky, executive vice president of Franchise Group, expanded on his company’s acquisition approach. Franchise Group owns The Vitamin Shoppe, American Freight and Buddy’s Home Furnishing, and in 2021 acquired Pet Supplies Plus, Sylvan Learning and Badcock Home Furniture.
“For us, we’re looking at how we can diversify our portfolio across different aspects of the economy, and different aspects of the consumer,” Kaminsky said. “Then, for us, it’s really about how those units perform and how can we continue to grow the franchise aspect of it. If you know the economics are strong, then you can franchise.”
In her comments, Kappler expanded on how acquisitions are targeted, speaking about the predictability of cash flow.
“Especially going into a potential recessionary environment, you have to start thinking about what that impact could be on future cash flows,” Kappler said. “Setting aside what we think of the demand for franchises and at-home services, there will be an impact from rising interest rates and those types of things.”
At Threshold Brands, Kappler is the CEO. A home services company, its brands include FlyFoe, Heating + Air Paramedics, MaidPro, Men In Kilts, Pestmaster, Plumbing Paramedics, Sir Grout and USA Insulation. The Riverside Co., former backer of Neighborly, formed Threshold after it acquired several brands and wanted to create a home services platform company.
Threshold Brands CEO Hagan Kappler
Galleher, managing partner of boutique investment bank Boxwood Partners, then gave input on what sellers can do to set themselves up as being a good purchase.
“The unit-level economics are key,” Galleher said. “You also have to make sure you size your territories correctly. Those go hand-in-hand. Getting the right balance of the right territory sizing and unit-level economics. You also have to make sure you get your first 20 to 50 franchisees right. Just selling them for the sake of selling them to raise capital is the worst thing you can do for a long-term value creation perspective.”
At the conclusion of the panel, when asked about how 2022 looks going forward, Kappler gave input from both the buying and selling sides of the matter.
“I think now is probably the time if you’re thinking about selling your business,” she said. “It’s a really good environment and there’s a lot of competition for these deals. And, as a buyer, you do want to continue thinking about those fundamentals. You want to make sure the valuation is in line with what you can deliver and make sure there’s confidence in what you think that asset will bring.”
Presented by Franchise Times and the Restaurant Finance Monitor, Dealmakers Week continues Wednesday, April 27, with panels on innovative deal structures and growth through acquisitions. Tune in Thursday, April 28, to hear from Dealmakers award winners Greg Flynn, CEO of Flynn Restaurant Group, and James Bodenstedt, founder of Muy Cos., and find out this year’s Deal of the Year.