Franchises are an integral part of the economy, but the industry lacks sources that can offer permanent, minority capital. This is why Franchise Equity Partners decided it is a good time to launch.
FEP was co-founded by Goldman Sachs veterans Michael Esposito and Scott Romanoff and is backed by HPS Investment Partners. FEP will focus on the restaurants, hotel, food & beverage, automotive, heavy machinery and health/Beauty/fitness club sectors. The firms plans to make minimum investments of $25 million in franchises that have more than 50 locations nationwide. FEP is a portfolio company of HPS and is structured as a holding company.
“The U.S. franchising sector is an important, growing and attractive portion of our economy that we believe is currently underserved in terms of financial equity-based options suited to the unique financial and strategic goals of its operators,” said Esposito. “Our bespoke approach, creativity and extensive investment experience, coupled with our strong capitalization, allow us to focus on the individual needs of entrepreneurs we invest alongside to help them meet and exceed their business objectives. Importantly, our capital and returns will be fully aligned with the success of our partners.”
The franchise space is attracting buyers because it allows them to buy a piece of an established brand that already has been operating for awhile, has growth growth potential and generates attractive cashflow. In September, Fat Brands acquired Twin Peaks, a sports bar and grill chain, from Garnett Station Partners LLC for $300 million. And most recently, Fat Brands bought Italian restaurant chain Fazoli’s from Sentinel Capital Partners for $130 million. On the PE side, in September, Clearlake Capital-backed automotive parts maker Wheel Pros merged with fellow auto brand Hoonigan.
Franchises are constantly looking for capital whether it would be for expansion or to diversify. Perhaps there is untapped deal potential in this sector.
– Demitri Diakantonis