The Role of Franchise Brokers in Mergers and Acquisitions

Mergers and acquisitions (M&A) within the franchise industry present unique challenges and opportunities that require specialized expertise. Franchise brokers can play a crucial role in these transactions. Acting as intermediaries, they facilitate successful deals by connecting buyers and sellers, providing market insights, assisting with due diligence, negotiating terms, ensuring compliance and managing transitions. Their involvement can significantly streamline the process while reducing risks and ensuring that both parties achieve their desired outcomes.

“Similar to hiring an agent in a real estate transaction, candidates will benefit from the expertise and wisdom of an experienced franchise consultant,” said David Busker, founder and principal of FranchiseVision. “They are vested in you successfully navigating the due diligence and investigation process, and may have worked with hundreds of even thousands of prior candidates going through the same process.”

Here’s a look into what franchise brokers’ roles can entail during the M&A process. 

Facilitating Connections

One of the primary roles of a franchise broker in M&A is to connect potential buyers with franchise businesses that are available for sale. This matchmaking process is more complex than simply pairing a buyer with a seller. Brokers must understand the buyer’s investment goals, financial capacity and long-term aspirations. On the seller’s side, they must grasp the business' value proposition and performance metrics, as well as the owner’s exit strategy. By leveraging their extensive networks and industry knowledge, franchise brokers help ensure that the buyer and seller are well-matched, leading to a smoother and more successful transaction.

Providing Market Insight

Navigating the franchise market during an M&A transaction requires a deep understanding of current trends, valuation benchmarks and potential risks. Franchise brokers bring this expertise to the table, offering invaluable market insights that help both buyers and sellers make informed decisions. 

For buyers, brokers can provide a realistic view of the franchise’s potential, including growth opportunities and market positioning. For sellers, brokers can help set an appropriate asking price based on industry standards and recent comparable sales. This market knowledge is crucial in setting the stage for a fair and successful negotiation process.

Assisting with Due Diligence

The due diligence phase is critical in any M&A transaction, and it’s no different in the franchise world. Franchise brokers play a pivotal role in this process by providing or coordinating access to necessary financial, legal and operational information. They ensure that the buyer fully understands the franchise’s performance and is aware of potential liabilities, and the competitive landscape. This comprehensive understanding helps buyers assess the true value of the franchise and make informed decisions. For sellers, a broker’s involvement in due diligence can help present the business in the best possible light, addressing any potential concerns before they become deal-breakers.

Negotiating Terms

Negotiation is where deals are made or broken, and franchise brokers are skilled negotiators. They work to create a win-win situation for both parties by helping to establish terms that reflect the value of the business while accommodating the interests of both buyer and seller. This includes determining a fair purchase price, outlining financing options and structuring the sale agreement. 

A broker’s expertise in negotiation ensures that the transaction moves forward smoothly, with both parties feeling confident about the terms. For both buyers and sellers, having a skilled franchise broker on their side can be the difference between a successful deal and a missed opportunity.

To learn more about franchise brokers, check out these 1851 Franchise articles: 

• The Benefits of Using a Broker When Buying a Franchise
• How Franchise Brokers Support Home Service Franchisees
• The Role of a Franchise Broker in the Franchise Sales Process