Franchise M&A Update: July 2024
Welcome back to Franchisor.com’s “Franchise M&A Update” column, your monthly inside scoop for all franchise M&A, industry rumors and bankruptcy stories.
As Q3 2024 opened, the restaurant space has continued to see lots of last-gasp saves from bankruptcy, with many PE firms playing the “knight in shining armor” role. A few restaurant groups and brands that are corporately-owned here in the United States (One Table Restaurant Brands, Krispy Kreme and Red Lobster) were rescued right at the buzzer or sold off assets to pay down mounting debt payments. Bright spots like Darden Restaurants, which franchises internationally, purchasing Chuy’s for $605M seem to be few and far between in this election year.
Even though most of the M&A was in the corporate F&B world, there were still a few stories to speak of in the franchise space. Without further ado, let’s take a look at what we say in July:
Show Me The Money:
Food & Beverage:
Collector Of “Financially-Troubled” Restaurant Brands, Elite Restaurant Group, Rescues MOD Pizza From Chapter 11: As we noted above, the restaurant brands (especially over-leveraged ones) are REALLY in trouble. After a couple of quarters of decreasing customer traffic, restaurant brands all over the industry are softening their stance on price hikes. Many major brands have gone for “value menus” in a bid to get customer traffic humming again. Problem is: not all brands have the ability to burn through cash like McDonald’s can. The victims of these situations are typically “legacy” brands or “fad” brands. In this case of MOD Pizza, it’s certainly the latter. After rumors of MOD filing for Chapter 11 protection, we saw the trend we’ve been seeing all year continue; a collector of “cash-strapped” brands came to the rescue for fraction of what the brand was worth at its peak. Quite a fall for a brand that was rumored to be looking at an IPO in 2021. Fast casual pizza has always been quite dependent on being a quick, downtown lunch option, which hurt them more than most during the pandemic. Will Elite Restaurant Group try to turnaround this once-mighty fast casual giant, or milk it for profits? Time will tell.
Children’s Services:
Susquehanna Growth Equity Continues Interest In Children’s Enrichment Space, Invests $38M For Minority Stake In Spanish-Immersion Leader, Tierra Encantada: After a massive spike in children’s services-related M&A in the boom of 2020-2022, the space has slowed down considerably. Since the space is a bit less professionalized, many of the M&A opportunities are founder-led. Since market conditions weren’t exactly favorable to said founders in 2023 and for some of 2024, we didn’t see much (with the exception of acquisitions like Sylvan Learning Center to Unleashed Brands earlier this year). That is what makes this renewed confidence by SGE (Susquehanna Growth Equity) all the more exciting! While Spanish-language immersion schools aren’t exactly the largest category in this sector, it is one that is rapidly growing. As the United States becomes increasingly bilingual, the demand for children to be able to communicate in multiple languages (especially Spanish) has increased exponentially. Tierra Encantada, led by Founder Kristen Denzer since 2013, has been tipped to be scooped up by one of the major players in the PE world for several years. With a fantastic inner-circle around here, Denzer managed to finesse a growth equity investment for an eye-popping number, putting her in position to be rewarded for her patience (and devotion to staying in the CEO chair) by transacting for loads more on her next turn. While early childhood education, swim schools and family entertainment centers are often spoken of as the “industry darlings” of children’s services, the language-immersion school has all of the same properties of early childhood education centers (attracts sophisticated operators and has massive demand) to become an industry to watch on its own.
On The Franchise Trade Block:
In An Effort To Juice Potential IPO Value, Recently-Formed Panera Brands Is (Rumored) To Be No More: Sometimes, theories that look awesome on paper don’t *really work* in practice. When JAB Holdings formed Panera Brands by combining industry titan Panera with Bagels Brands (Einstein Bros Bagels, Bruegger’s Bagels, Noah’s New York Bagels, and Manhattan Bagel) and Caribou Coffee back in August 2021; many in the industry had their doubts. After being taken private in 2017, Panera seemed to always have plans to return to the public market after a bit of reshuffling. In the short-lived “SPAC” era of 2021, Panera attempted to go public via a Danny Meyer-backed vehicle. Due to market conditions, the plan was abandoned. Suspiciously, the announcement was dropped mere months after “Panera Brands” was formed. My assessment: Bagel Brands and Caribou Coffee’s recent bid to increase scale and cash flow via renewed domestic franchise efforts didn’t go as planned, making both brands a hinderance in Panera’s path to IPO. After these brands are sold off, expect Panera to be on a stock ticker near you not long after the fact.
That’s it for this month. As most of the industry goes on vacation in August, I’m not anticipating many deals being announced. Once we hit post-Labor Day, the election being in its last stretch will likely slow down M&A even further as we wait patiently for an outcome. I’ve been wrong before, but trends show these updates may be scarce for the rest of 2024. See you in September!
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