Insider Advice on Selling a Multi-Unit Business or Franchise

Welcome to M&A Top, the number one podcast and all things related to mergers and acquisitions. Brought to you by Morgan and Westfield, a nationwide leader in mergers and acquisitions for small to mid-market companies. We bring you exclusive interviews with industry experts in business sales, valuation, private equity, investment banking, and more. It's our mission to provide you with insight and guidance on how to build your company's bottom line and maximize value for eventual sale. Here's your host, Jacob. Welcome to M&A Talk. My name is Jacob, president of Morgan and Westfield and your host of M&A Talk. And today we have John Berg, attorney at Monroe, Moxis Berglow firm in Minneapolis, Minnesota, joining us on the show. John, before we jump into the topics here, can you give people a little background about yourself and your specialty? Sure. I'm a shareholder at Monroe, Moxis Berglow in Minneapolis. We are a small mid-size firm that spends a lot of our time focusing on what we call multi-unit retail, which is business associated with franchise, hanging, and as well as chains that are not franchised. We deal with all the issues associated with M&A, finance, tax, estate planning, succession planning, employment, etc. Is that a law firm? That is a law firm. We are lawyers. So typically, we build by the hour, although there are cases where we do fixed fee billing as well, but we are a law firm. And we're lightsened in Minnesota in a few other states. And to the extent we need to, we associate with law firms and other states as we need them. I'm getting the hunch here that you may be do some things that other law firms don't. You mentioned succession planning. And it seems like you touch on some topics that other attorneys don't. Would you say that's the case or no? I think that's a true. I mean, our business and our firm has been focused on what we call an industry-wide marketing approach for many, many years. And what that means is we've developed what we think are skills and knowledge that was specifically tailored around what we call multi-unit, like I discussed before. And we apply that on other industries as well. But we've specifically marketed to the multi-unit space for many, many years. We've developed legal as well as other expertise that helps us to represent clients more effectively in that space. For example, we have become quite familiar with P&L, margin issues, labor costs, all the things associated with multi-unit retail or unique to multi-unit retail we're fairly familiar with. And that includes, again, on the franchise front, that means we have to be familiar with franchise or concepts, legal issues as well as understanding how to work best with franchise or often in the beginning it's about getting transactions approved. And then in the long term, it's about development and other things that happen with the relationship between franchise or and franchise at your time. What do you mean when you say multi-unit? There's always franchises or are there other multi-unit business models? Okay, so from our perspective, multi-unit doesn't necessarily mean just franchise businesses. Franchise businesses by their nature are multi-unit. But often, we'll represent 10, 20, 30 store chains, meaning independent operated businesses that are multi-unit, meaning multi-location, retail location operations, but may not be franchise. They may be on the way to becoming franchise or they may be intended to not be franchise. So we do both. We work on the franchise side as well as the non-franchise side. For the typical buyers, because it seems like it's a different group of buyers than your average franchise buyer. The type of buyers and the size of transactions, which we haven't discussed either, but that's impacting who the buyers are as well. Over time, like say over the last 20 years, the size that deals has changed. So 20 years ago when we were doing an acquisition, it might have been a 10 or 15 or 20 store burger king acquisition. And that was viewed at the time as a fairly big transaction. Now when you're looking at a transaction, it could be 100 or 150 units. So as transaction size has increased, the type of buyer has changed. In the past, you could have a smaller mom-pop type operation buying one, two, five stores without much difficulty where now when you're talking about 100 plus store franchisee that's being sold or a deal where a franchisee or selling that many stores on the market to attach a new or existing franchisee, there you need a significantly larger amount of capital and your capital structures have gotten more complicated. So in the old days, you would have senior debt and equity is all you needed. In those cases, the other factor that comes into play here is the multiple that's involved. In 20 years ago, the multiples might have been 4.5 or 5 times e to die. Now in some cases, they're on the high side, you're looking at 10 times e to die. And you're still looking at a more tight range about what you can get for senior financing. So as that gap gets bigger, so if you're selling it 10 times or I'm buying it 10 times, and my financing has only 5 times, I need to cover 5 times, either through equity, private equity, and as an in your something else. So that's gotten more complicated as well. That back to your original question about who the buyers are, the buyers have become more and more private equity group and professional and money people more sold than they were 20 years ago. 20 years ago, there were a few private equity groups or other, you know, what I would can all professionally manage equity groups involved in acquiring these franchise type businesses, but that's changed dramatically over the last 20 years. So we're now any of these large transactions almost always have some sort of significant private equity or other invested dollars at stake. And the private equity firms that they do on a buy and flip are they holding this 5 to 7 years and flipping it. And if so, how do they make the numbers work on that? Because normally private equity would frown on retail, but why would this be an attractive investment to private equity firms? That's true. And 20 years ago, that was the belief is that you couldn't get the returns that that type of investor was looking for. Now they're showing that they can. I mean, again, I don't want to walk through all the exact details of it. It'll be too complicated for this called. So let's say I'm borrowing it five times, I'm amortizing my debt, I'm producing additional cash to cover all my expenses plus my remodel, re-imaging other cost. I can quickly model out where I can get to, you know, 20% plus returns and sometimes some that's substantially higher than that, depending on how it works. And again, the favorable depreciation that's been around for the last couple years has also helped on that because it's created additional cash flow post transaction that wasn't there before. So that has made people even out to a certain extent more aggressive in pricing. So it's coming in and implementing a favorable capital structure that would yield a high return, essentially. Correct. Yes. And is that not available in other industries or is it just easier to do on this because it's more asset intensive? Well, no, I would say the difference here is that this is viewed as more predictable, you know, year in and year out. Now again, the last year or so is an example where that's not always the case. But, you know, if you own one of the traditional franchise restaurant franchise concepts, they've got along history of operations and you have relatively predictable performance going forward. So that I think is different than other businesses where you're potentially at risk for macro or micro economic issues, then you may be for some of the specifically the restaurant concepts. What can you throw out some name so people can envision what types of multi units we're talking about? Well, I mean, we work with all the, you know, the young concepts. So Taco Bell pizza had our KFC. We're involved with most all of them Wendy's McDonald's, Papa John's. We just all the big name concepts that are out there that have a lot of units in the market. We typically have some involvement at some place in connection with them. And what about hospitality? You mean like in hotels or hotels, motels and other industries? We do some with hotels, not as much as we do in specifically in the restaurant space, but we do some with hotels as well. And our business has been mostly on the restaurant. We do all of after care, auto stuff. There's a variety of other things that we do fitness, you know, cross multiple levels of fitness that were involved in, but not so much so far on the hotel front. Is there a scalability to that? Are your margins going to be a little bit higher if you have 100 units versus 10 units? They should be. And again, some systems are better suited for scalability than others. Historically like the sandwich concepts that have lower volume, they were not viewed as conducive to that. But yes, it binelards your gene A should go down. It depends again if you're a public company or a private company or there's a few other factors of plan. But as you get bigger, binelards, you should have decrypt climbing kind of gene A cost as you go. But again, you always hit kind of thresholds where you spike up for a little bit and then you come back down. For instance, if you're going to buy 100 stores, you're going to probably have a short period of time where you're going to have an increased cost while you get on top of it and then it should level out more. Another factor that plays in it, are you trying to do development? Ground up development generally requires a lot more resources and time than buying. People like to buy restaurants because you're buying predictable revenue. You don't have to guess what a new developer site is going to be. You know when you're going to close, it's a less risky investment and a more predictable investment. Similarly, if you're developing, it's less predictable, more expensive and much more time consuming. If you're doing more development, then you're going to generally have higher GNA than if you're doing less development. I guess it's answered a question. There's a variety of factors, but buying large as you get bigger, you should have increasing even down margins and decreasing overhead related costs. And for those that don't know, GNA is general and administrative expenses. Right. And in the restaurant fund, the way we think about that most often is above store management. So if you're the regional, so if you have 100 units, you have a store manager, you have somebody that maybe manages 8 to 10 stores and you got another region above that and maybe they manage 10 people managing 8 to 10 stores and then you got somebody over the whole geography. Right. And then that rolls into you got accounting and insurance risk licensing permitting kind of just a day to day stuff, dealing. If you have 100 locations, you're always dealing with lease issues. You know, see there's a ton of stuff that's involved above store level, but that's the kind of stuff that typically you think of as GNA. Are venture capitalists in this space in terms of investing in new concepts? Or do you not see that very often? Typically, there's groups that want to buy. So there's certain groups of a lot and look for a 10 to 20 store chain that's not franchised. That's very speculative and that you say, okay, I'm going to go buy that group of stores and I'm going to franchise them. I'm going to develop a franchise sales model and then I'm going to make a ton of money. Now there are groups that do that, but that's generally viewed as much riskier, high reward, but more risk than going and buying a 20 store, 50 store deal that's got historic numbers that you can rely on and data that you can research. It's hard to know for sure when you look at a chain, if you got a 10 store chain in the southeast, it's hard to know if that 10 store chain in the southeast is going to sell in the Midwest or all over. That's why a lot of times you see with franchise businesses pre-franchising, they try to spread out geographically to try to get a sense if this is a national concept, a regional concept, or how it works. But you do have people that look for those type of deals. Then you have others that are looking to just leverage and grow within a specific concept. Is there a point in which you need to get? I've noticed this, that you need to get to say 100 units in terms of franchising to have a profitable model. Because what I've done is I've looked at the FDDs, of course, those are public record. I access typically in California, Wisconsin, Minnesota, and I'll scan to the financial section. And then boom, you've got their P&L right there. But the question I don't know is if they're inflating the salary by plugging in a $2 million or $5 million a year CEO salary. I don't know if that's the case. So sometimes it seems like those are difficult to try to assess. It is. So what I say to people that are looking to invest into a system is to talk to other franchisees within the system so that you get a better sense of not just what the theoretical cost margins are supposed to be, but what other franchisees are producing. Even if you have a system that the franchise or itself is operating stores, that doesn't necessarily mean that's the same numbers that franchisees are producing. And sometimes they're better on the franchisee level sometimes not, but their at least franchisees are usually very open to sharing information so that you can get a sense of what's real and what's not within a system. So that's generally what we recommend. Is there a big debate between franchising and say corporate ownership? So if you have, of course, the margins are going to be much higher if you own the stores versus if you franchise them. But what's the general rule of thumb or thinking in terms of which direction ahead? So that's actually a trend too over at least in my judgment. It's a trend over the last few years. If you go back 20 years ago, some of the large well-known franchisors owned and operated a good share of the number of stores within their systems, many of those same systems over time have declined their store level ownership. So they become in some cases, they become exclusively franchisors versus franchisee/franchisor/ franchisee operating their own stores within the same system. That has also got consequences both to the franchisee or as well as the franchisee's going forward. But from a franchisee or perspective, what that does is the multiple for franchisee zores is much higher than the multiple for franchisee's. So what you then focus on is franchise revenue and making money in the franchisee or side and not worrying about operations themselves. And sometimes in some systems that creates a misalignment between the franchisee or in the goal they have, because remember, franchisors are paid off the top line. They generally get a percentage of sales. Franchisees make their money on the bottom line, meaning what's left after they pay all their costs. So if you are 100% franchise system, your motivation is to produce revenue off of sales or to produce higher sales. It isn't always to produce more profitable sales. It's produced more sales. Because more sales, regardless of profit or not, profit will generate more revenue for the franchisee or franchisee. These only want profitable sales or sales that will drive people in to buy things that are profitable. So sometimes you're selling products that have lower margin, but it's driving other higher margin things in. So all in all, it's a good deal for a franchisee perspective. But if all you're doing is selling inexpensive items that have low margin and that's pushing up a revenue for the franchisee or the franchisee or in the short term are winning, but the franchisees are not. And you saw this over the last few years a lot when you watched these $15 and our spikes happening in states like California and New York and others. At minimum wage, is it real francting? Yes, minimum wage. And when as minimum wage is going up in these locations, at the same time, you're asking me to sell cheap items or a whole slated cheap items. That is a very difficult thing from franchisee's perspective. And that creates a very different issue with alignment, right? Because if you're the franchisee or I'm the franchisee and you're making me sell a bunch of $5 on many items and that's driving my sales up. Maybe my sales go up 10%, which would be high. But let's say it does. That doesn't mean my profitability went up 10% and you may have actually gone down. So in that case, what happens, your revenue is going up 10%, right? Because you're getting paid say 5% on sales. So if mine goes up to 10%, you're going to follow along. But my situation may be very, very different. And that's why it's in my mind, somewhat safer to be in a system that has a reasonable store count at the franchise or level as well as being a franchise or because otherwise there is this potential for misalignment and that has caused some issues in the past. Don't the franchisee's need to be profitable for the system to be healthy in the long term. Because I would think it would crumble in the long term if the franchisee's are not profitable. But the franchisee level. That's I guess true. But the question is, what is the timeframe that a either side is looking at their return, right? Their public, their own franchisee's or are on a very short timeframe, reporting earnings on a regular basis. And so they'd constantly want to be showing improving earnings. The other thing they want to show a store count. I mean, those are two things that are important from a public market valuation perspective. Those things though are again, sometimes inconsistent with the franchisee's objectives, which are to be profitable, right? If I'm the franchisee and you're the franchisee or and I want to be profitable, I may have and I say I have 100 stores. In any given time, I may have two, three or five stores that are underperforming that I might want to get out of you as a franchisee or want me to keep stores open because you're going to even if I make losing money in those stores, again, you're getting paid in the top line. And on top of that, the public markets are looking at your store count to know whether or not, which way you're going. Are you getting bigger or getting smaller? What's happening within your system? So again, that leads to some in the short term distortions about what's happening. Systems that are open to this and see the big term or the long term when they're looking at things, I think are ultimately going to be more successful. But that's not always the case, right? If I'm trying, if you're, I guess you're the franchisee or in this example, but if you're the franchisee, though, and you know, you're going to arrange report coming up and you don't want to report, you know, a bunch of stores being shut down, you're not going to likely agree. to me shutting my five stores down today, you might agree to it in the future. But every day I leave those stores open that are losing money is bad for me. And it continues to be good for you because you're getting paid in the top line. Do they care about keeping those off of the, I believe it's item 20 in the FDD or the franchise disclosure document where you have to report on store closings. Do they seem to care about that from the franchise or level or not really? They do. I mean, but that, I mean, the factors in that's another, you know, if I'm a franchisee looking to get into system, I don't like to get into systems that show a lot of store closures. But I would say you have to look a little more closely at the data and understand what you're looking at in order to know if, no, if that's a good thing or a bad thing, you know, you might have an old system that has, you know, 50 store closures. But if you, it's an older system that's been a long time, what could very well be happening, you know, for 20 years, you know, the freeways move, you know, there's all kinds of things that happen. So you, you know, that that site that might have been a perfect site 20 years ago may not be a perfect site today. So there's a lot of things that have to be looked at. If you have a very new system that's, you know, less than 10 years old and there's a bunch of store closures on that to me, that's a much bigger deal. But either way, you have to kind of drill down in the numbers to understand if what you're looking at means anything or not. You talk about these stability and the predictability are consumer tastes in terms of food. Are those fickle to some degree? Because it seems like if you don't reinvent yourself every, whatever number of years, X number of years, that the concept will go stale. And I guess the other flip side of the coin is, is it a zero sum game? Because people can only eat so much food. So, you know, one, one winner comes at the expense of a loser. But what are your thoughts on the overall market dynamics from that perspective? For example, the pizza shops you see today, and you see some of these new pizza shops, blaze pizza or whatever they might be are much different than they were 10, 15 years ago when you saw pizza hut and so forth. What are your thoughts in terms of the consumer preferences and how those can change with these generation versus the stability and predictability? Or is there investment horizon short enough that that's just a mood point? It's not again, with these type of business as their I had a client years ago say that they're penny business as an it's true, right? You do a lot of transactions and you're trying to make a few at a time. So any if you lose, you know, two or three or five percent, that's a big deal in a restaurant scenario. So I think you have to be worried at any point about any loss that you could have. As it relates to taste over time, yes, generationally things have changed a lot. You know, and I just look at my kids and what they are eating versus what I used to be eating, right? I mean, they eat a lot of the, you know, a rice bowl, kind of different concepts, right? That would not have existed when I was a kid. We ate hamburgers and pizza, right? So things change over time. But what is important, I think, is that I'm a franchise or perspective on this issue and to a certain extent for the franchise, the perspective is to not have a system that's just based on one generation, right? Because of my customers are primarily over 55 and I'm not taking the demographics younger than I am over time. You know, my customers are going to be getting more and more scarce over next 20 years, right? So systems that have appeal across multiple generations are the ones that really typically do well over the long period of time. Let's take a quick break and then we will be right back. Most important business transaction you'll ever make may be your last one when you sell your company. So don't go to loan, work with an organization that's made it their business to sell businesses and that's all they do. Visit MorganandWestfield.com. Welcome back to M&A Talk. What are some of the big players out there that haven't decided to go the franchising route? I would want to think maybe it's Starbucks, but are there any that come to mind right off the bat and if so, what do you think they haven't? Well, so let me rather than get into details about who, what I would say, I mean, if you think of franchising as a way to leverage growth, you know, as a way to finance growth essentially and that's financing means me as a franchisee is doing the growth for you and I'm paying you something to do that. If you as a individual or a franchise, a potential franchisee or have enough money to grow as fast as you want, theoretically you should be better off in the short term at least to continue to grow because then you would have the same margin you had before or whatever the 5% margin is and on top of that, any operating profit you would have as well. So hopefully if the system is strong and you don't have no need for capital, there should be no reason to franchise in the short term. And system more and more, there are a lot of, you know, starting groups, particularly now where you're behind the curve because you got some of these that have been franchising for many, many, many years. So it's very hard to get the platform out there quickly so they have a need to get this kind of capital from outside versus themselves. So that's why they franchise and then they can grow quickly in multiple areas because back to your market density issue or saturation or what you can absorb. I mean, in some cases you're saying, okay, I'm coming into a new area and so 500,000 people in this area, there's no pizza concept. And if I can get a hair and I can build it out very quickly, I can get ahead of the competition and basically they will have a very difficult time ever making inroads into that market once I get that dense. If that's what you're trying to do, it's much, much harder if it's just one person doing the development, right? In my mind, the biggest reason to franchise is to get out there. And again, it's a different business model too, right? I mean, franchisors, many franchisors today don't want to have to operate the businesses themselves. That becomes geographic and management and other issues that are associated with that. So it's much simpler and return is higher potentially depending on where you are and how far you're going and what you might want to do. It's maybe simpler to do it that way. But that in my mind, those are the reasons why people either franchise are they don't and more and more I think now it's harder and harder to start from scratch and get to the size that you need in any kind of reasonable period of time without franchising. It would seem, if say, a thousand units and you have some that are corporate owned, it would seem like you'd really need some geographical concentration because you're going to need the field managers. And if you have one store in Texas and three in New Mexico, that field manager would not be able to cover those stores. So that typically is that isn't the way it ends up being. So if if I have let's say I have a thousand, I'm a franchise or I have a thousand stores that I'm franchising and a hundred of them are to myself essentially. Usually those hundred stores will be in like five markets or less or some number of contained markets because otherwise operationally it's just too expensive to manage them. So if I did get left as a franchise or in that example with one or two or five here or there, I likely would refranchise them to somebody else because it will be cheaper for them to do it, particularly if there's development opportunities in those areas. But what are the typical types of clients that you represent? Of course multi units, but I know we're talking about franchising quite a bit. Do you represent the franchise or is as well or is it primarily the multi units and also the multi unit franchisees? We do some franchise or representation, but primarily it's franchisey representation. And it's mostly associated with M&A or finance on these large multi unit franchises that were typically representing and on a franchise or side, it's often got to do with those issues as well. So that's how we approach it. And in your right, we represent many businesses that have nothing to do with chain or franchising. So it's not all multi unit that we do. We do traditional business transactions and represent traditional business every single day of the way. And how do those seem to fare the solo or independence, if you'd like to call them that? How do they fare? Well, in a tough market and especially in the recent time with the pandemic, I think it's been very, very difficult if you're a small or independent person trying to hang on. You know, when this all happened over the last course of the last year, I mean, we're cash poor on the front end sales declined, even the groups that eventually had sales pick up maybe even, but in the beginning, everybody went down basically. In those cases, if you're independent, you or if you're independent or franchise, you're dealing with the same sort of issues, lenders and franchisers or not, if you're not franchise and less sores. And again, it's was much easier, generally is much easier to deal with those issues if you are franchise than not. You know, I think in those cases, we had more patients from lenders and less sores to deal with the franchise than larger clients than the non-franchised and smaller clients. Why would that be easier if they're franchised? Well, I think because they know that there's a system out there that's supporting them and watching where they're going. And so less source and lenders. you know, they are not only investing in me as an individual, but they're investing in your system that you're franchising to me, right? So if they believe in you, they still have to believe in me, but they don't have to believe in me for everything. They only have to believe I can operate the concept. They don't have to believe that I can figure out the concept or decide what the products are going to be for the future that are going to attract customers where if I'm independent, I got to do it all. So I need to have a lot broader skill set, potentially, than someone that's just executing on a concept within a franchise system. And what about the minimum wage? Are you a big proponent of what about a $50 minimum wage? I think most people feel it's important to pay people fairly for the work they're providing. What I think has become a problem is the geographic application of the minimum wage increases has caused problems within the larger systems, because again, if you're in New York and you're paying $15 an hour and you got predictive scheduling and everything else on top of it, the cost per hour is much different than if you're in the middle and midwest somewhere where you have seven, maybe you're, I mean, I talk about two things, the statutory minimum wage and the effective minimum wage, meaning sometimes you're paying $10 when your minimum wage is seven and a half or whatever. The important piece isn't statually, the important piece is, what are you paying? But as long as that effective rate is, if it's eight bucks in somewhere in the midwest and it's effectively 16 bucks or something in New York, that creates huge distortions between the PNLs for someone in New York and someone in the midwest. So the products that may be profitable in the midwest become not profitable out in these high wage markets and that affects delivery, affects the type of products you want to sell, a whole bunch of things are impacted by that. In the beginning, I think systems were caught off guard, certain systems were caught off guard with how they look at it and being thoughtful about making sure that they're putting their franchisees in the best spot to be successful. And I think if this had gone out broadly across the country as a whole, then everybody would have been in the same situation. I mean, there might have driven a lot more, well, I guess it wouldn't have driven more profitability in the midwest case, but it would have put them in the same platform. I mean, you still have higher costs than the coast than you in midwest, but the wage cost was so dramatically different that created huge distortions. - How do you think the industry will cope in the long term? Efficiency or raising prices or some other method? - I think both and you're seeing it already. I mean, you're getting all the kiosk type ordering things, you're getting more fast casual type restaurants where again, places where you can minimize number of employees that minimize employees is helpful for controlling cost, technology sometimes does it, other that the type of the restaurant itself may do it as well. So you're trying to do that and you're trying to, again, prices are gonna have to be a factor because you just, you can't raise, you know, a flavor cost is 30%. You can't double labor cost in five years and expect it all to work without some sort of, you know, realignment on your revenue. - What is a labor cost typically for a QSR? Is it quick service restaurant? - Yeah, it, again, it ranges, but like, you know, say all these numbers vary again based on the concept and it varies based on the volume of the particular restaurant, right? They're, you know, very low volume restaurants typically have higher costs because there's staffing that you have to have at a minimum, right? So all these things vary, but like just say, you know, 25% and up depending again what your concept is and what you'll built into it and, you know, kind of benefits you're providing, that sort of thing. - And food cost is what 28 to 32% roughly? - Yeah, again, depending of what the concept is and, you know, now we're having something significant inflation on some of the commodity prices which are gonna, you know, affect and, you know, some of the dairy products, the proteins, et cetera. So you're gonna see some of those in the short term be distorted as well. But yeah, how deep do the buyers dig into these kinds of metrics? Or if there's profitability and there's evitown, there's an upward trend they'll buy regardless of the specific industry metrics? - Well, I think depending on who you are, so if you're an active buyer that has done deals in the past, you typically develop the pattern about what you're gonna do and understanding about how you can perform. So if you've had 100 stores in a specific system, you know more or less what you can do with food cost, labor cost, et cetera. So there may be a difference in terms of hourly wage or something, but you can factor that in. So when I look at a deal, I'm looking at what is the existing, what is the sellers' evidized that sits today? And then I'm looking at what will my performing evidabia as we go into the future. So I can be saying I'm buying for you at five times evidabia and telling you that and that's maybe true based on your evidabia, but that might only be four times what I'm expecting my evidab to be performing going forward when I adjust for the things that I think I can do to your business. So basically you look at all that stuff and then you try to drive a price that you can both live with and that will make sense going forward. What are some rules for different size businesses, like 10 units versus 50 versus 100 in franchise or versus franchise E? What are the various rules of them within the industry for EBITDA multiples that is? - Say on the low side, maybe you're three half, four and a half times evidada to again on the high side, 10 times evidada. Again, very dependent upon the concept that you're in. And the reason that's important is the predictability and the history of repeat predictable performances different concept to concept. Some people or some concepts year in year out, it's really good this year next year not so good. Can you comp, certain concepts comp off fire years, I'm sorry, all comp off of priors, certain comp very well even off the strong numbers, right? So if I'm comp and positively off of three years strong numbers, that's good. If I have one year that's very good in the next year, I comp poorly off of that, that's not so good. So you got to look at all these factors about what it is that that system has traditionally done, whether or not it is something that's going to be predicted what going forward. The better predictability there is, the more certainty there is, the more likely you're going to pay a higher multiple. And the more likely you're going to build a bar or more money, and the more comfortable you're going to be going forward because you can have a better sense that you're not going to be in a completely different environment the following year. Franchise or multiples are much higher though. They start on the, again, depending on where you're at, they can be 10, 20 times. I mean, they can be very high. How would a 20 multiple be justified? Because again, you got to look at, it's kind of like same thing with internet companies in the past and in the current. I mean, you're not always looking at current income or revenue in terms of what you're pricing. If I'm buying a small franchise or, and I feel like there's a lot of growth and a lot of opportunity when I perform it out, I might feel like I can do a lot with that system, right? And I also may feel like I've got a lot of synergies to roll it into my existing base. So again, I might be rolling. I'm factoring in other things to make sense of that versus just what the bear multiple is. And the buyers of the franchise or as to those tend to be competitors or private equity firms as well. They can be both, you know, franchise or by other systems as well to expand and diversify their platform. And some, you know, certainly private equity groups do as well. And there are others, you know, like just individuals that create a concept and grow it as, you know, for as long as they can. And then they flip out of it. - Who would you say, if you can mention, who do you think are some of the most highly sought after multi-unit franchises? - If you look at it, I think from a market multiple perspective and I'm probably forget some. So I don't mean to insult anybody in this. But Taco Bell over the last 20 years Taco Bell has done very, very well. Wendy's has done well. There are two of the ones that have been pretty solid. Wendy's had, you know, over the last 20 years had some ups and downs. Everybody has a little bit of ups and downs. It depends what's important is how quick you can contain the down and stay back on the up, right? Other systems bounce up and down much more. So those would be two, I mean, predictability, I mean, others, I mean, if you think about the ones that are around the longest, those are usually the ones that are most predictable. And that's, you know, based partially on the length of their time as well as the fact. I mean, the fact that they exist is one thing, but the fact they exist is because there's demand. And if there's demand, that usually means there's a reason and that backs into multiples and valuation. - Yeah, burgers and tacos, of course. - Burger and tacos and pizza are those three categories and certainly in the recent past have done a very, very well over the, you know, the last 15 months. But yeah, over the 20, last 20 years, those have done well as well. - What's a combination, a business combination? - You mean like just a merger? - We asked you what you wanted to talk about. You said transactions involving business combinations, purchases and sales. - Yeah, okay. So that, essentially that, was just a generic reference to things, you know, by cell and different ways that it's done. And I guess the other way to take a think about that is just what fits well together. Because one of the other things that's happening now is the franchisees are getting bigger. Transactions are getting bigger. Franchisees are getting bigger, meaning that the revenues that are associated with them, the number of stores they're associated with and the cash flow associated with them. As they get bigger, they are now trying to diversify and become franchisees or franchisees in multiple systems, right? You may have a group of Taco Bell stores and Haneir are, you know, a variety of other things. So you see a lot more of that than you did 20 years ago as well. I mean, the other thing that you see in some systems, which leads to that actually is in some system, they're kind of curtailing the size that I can get to within that system. Franchisees by and large want to grow. So if you tell me that I can only own 200 stores in your system and I still want to get bigger, you're basically telling me I need to go find another concept. Otherwise, I can't grow. So we're involved in kind of all different levels of that trying to help people reach their objectives in terms of size and direction and where they want to be long term. How often do you see private individuals investing in the space? Fairly often. I mean, that's, I mean, there's always private individuals. Most all franchise hours require that there is some individual that's going to be the guarantor of that franchise, some individual to guarantee the obligations of the franchise agreement. So you always need to have a key person in all transactions, but they're more and more supported by private equity versus being 100% owned by private equity. So say you've got a buyer that I don't know if you ever advise buyers like this, but somebody that has $10 or $20 million, they want to invest in a multi unit. What would your advice to that buyer be? And what kind of returns do you think they could expect? Well, so the first thing you need to do is figure out do they want to actually run a restaurant company if that's the area they want to look to. So you drill down on that and find out what kind of involvement they want to have, find out what kind of interest they have, and then try to get a sense of what it is that they're looking for and how involved they're going to be and what kind of structure they want around it. Because there are, again, certain operations are much more simple than other operations. Also how quick do they want to get big? Because if you really want to get to be 200 stores in a concept, you have to look at the concept that you're talking about. If they have 1,000 stores in that concept and you want to get to 200, and then you look at the franchise base and you say how many stores is a realistically going to be for sale in your term to get you there. You've got to look at all those kind of things to decide if you're heading in the right direction. Find the right system that has potential. You can look at some of the older franchisees or franchise systems, particularly older franchisees, within those systems that might be looking to get out of it. So if you're saying to me, I want, or I'm saying you that I want to go out there and get big and I've got a bunch of money, well, then we want to put you in an area that's going to likely get you there and also make sure that we're focusing on what the covenant not to compete issues might be. Because if I get into the wrong system, then there's going to be restrictions that may stop me from getting to another system that I want. So unless I'm really sure that I'm going to be able to get to the level of number of stores I want within a system, I need to keep open the possibility that I might have to do it in another system. In order to do that, I just have to make sure that I'm not signing up for an on-compete that's going to restrict that going forward. Are there some rules of thumb for EBITDA per unit? So for a QSR, a good EBITDA is three to five hundred thousand per unit, for example. Are there any rules of thumb like that that are common in the industry? I would say not really. In the reason it's just so different, right? Some systems, you, again, there's factors on both ends, revenue factor. So if I'm doing, let's say I've got three and a half million dollars of revenue to location, that's going to potentially drive a bigger number than if I have 800,000 at a location. And then the second factor is what is the percentage of EBITDA flow through. So if I can have a low margin high revenue, high margin high revenue, I mean, there are all those things. System to system, it matters. So I would say you have to look specifically within systems and even more so, even within, you know, if you're looking at the pizza segment, for instance, you still have to look within the segment, the various players to determine what you want because they're not all the same even within the segment. What are the characteristics of a good multi-unit restaurant? Because when you say multi-unit, we're referring to one owner owning multiple units, correct? Correct. So, and again, one owner may be a group of individuals, but one group that owns. So you could have, you and me and four other people might own a company, ABC company, that owns 300 restaurants, right? So in that case, I'm talking about ABC company, essentially, not us individually. When I look at that and when you say what are the characteristics, I think one is, is it easy to reproduce the results in multiple locations? Some concepts are highly, you know, chef driven concepts are very hard to produce and a multi, you know, a very complicated menu, execution is hard. Those kind of things are much harder to produce on a mass scale than tacos, pizza and hamburgers, right? There, I mean, again, there's still execution that you have to have, but the simpler the system, the more likely it is that you're going to be able to produce consistent performance location to location, which is what franchiseors want. And that's what they're judging you. They judge the facilities, they judge your performance at the facilities, they judge, you know, a variety of things associated with that. They have scores, they send people out to review it. So you want to have a being a system where you can control as much of that as possible in a relatively easy basis so that you can be more sure of what you're going to produce. So if I'm really good at operating and I operate consistently, if I go get 50 more stores, my predictability of success on those 50 stores is much higher than if I have 100 stores now, 30 performing really poorly in 60s, you know, whatever, 70 performing really well, if not, the question is why, right? I mean, if the reason is I can't get out of those 30 stores because the franchiseors won't let me terminate those leases and move on, that's one thing. But if it's just because I'm not doing a very good job of operating, if I get 50 more stores and question is, is that percentage going to stay the same because if 30% of the stores are not going to produce very well, that's more of a problem, right? So you want systems that are easy to execute. You want to be able to find systems that you can find the support. If you're really going to have this sort of multi-unit structure, you have to have people that are going to be able to work with you on it. So again, it's just not me as the owner of that concept or the franchisee of that concept that needs to know what's going on, but I have to have a whole bunch of people. Everybody extort, you know, all the way down to the cashier, but everybody above all the way up to the regil and the, you know, if you have a vice president operation, they all have to be able to work together to produce a singular result. And let's take a quick break and we'll be right back. Thanks for listening to M&A Time, sponsored by Morgan and Westfield, a nationwide leader in business sales and appraisals. Our goal is to provide you with insight and guidance on how to build your company's bottom line and maximize value for eventual sale. To view the show notes on this episode, including contact information for our guest and links to resources we mentioned in the show, please visit Morgan and Westfield dot com. If you are enjoying this episode, don't forget to subscribe and leave a review. And now back to today's conversation with your host, Jacob. The multi unit franchises tend to be a little bit higher volume than the non multi unit track because I know a guy wants to heal in four subways and he said, Jacob, it's just tough because they don't produce enough revenue to be able to hire a competent manager for each location. And he had a real challenge. But wouldn't you say that most multi units produce a much higher revenue figure than other franchise businesses or other franchise restaurants? So are you saying that if I own, if I'm an individual store franchisee in a restaurant versus if I am a franchisee of 50 stores that I'll do better with my 50 stores than I would be if I was the one store franchisee? No, it seems to me like one of the characteristics of a good multi unit of franchise is a minimum revenue figure, be able to pay a competent manager because of course, if you're a multi unit owner, you have to have a reasonably competent manager at each location and you have to pay that person whatever the figure might be, 50 or 75,000 per year or whatever the number might be. So that any multi unit business you would think would have to be a little bit on the higher volume side. So that was what I was referring to early on about some systems are more conducive to rolling up and becoming a large platform versus small. Some systems are more what we would say are more like owner operator kind of, you know, [BLANK_AUDIO] If I run it as an individual, I'm trying to get 70 grand a year. It's kind of a job. In that case, if I hire someone, I basically don't have any profitability in those kind of concepts. That won't roll up well into a, you know, they would not likely be in our 100, 200 store franchise e-base with that if that's the system, right? And again, low volume typically doesn't leave enough room to have, you know, the store-level managers that you need, right? If you're going to do, if I'm going to have 100 stores, right, I'm not going to spend much time in any one store, right? Even my above store supervisors aren't going to spend a ton of time at any one store. You need to have competent restaurant-level managers to do that. In order to do that, you have to produce enough cash flow to support paying them, right? And still leave money on the table so that it can support all the capital structure around what I'm trying to do in terms of growing my store-level account. What are some of the biggest legal issues that you run into in terms of these transactions? Well, I mean, some of the legal issues are similar than any other, you know, M&E transaction and damnity representations. All those kind of things are very much similar. But what's different with franchise businesses is that you're dealing with a franchise store, and in many of our cases, you're dealing with a whole bunch of landlords. So the logistics to close these large deals are, you know, fairly complicated. They're relatively, you know, can be expensive from a legal perspective or so, right? Because you could buy 10 stores in a concept and let's say that price for those 10 stores is $10 million, or you can go out and buy a, you know, a plant across the street that's $10 million. It's a lot simpler to buy that plant across the street than to buy these 10 other locations. The plant doesn't have a franchise or the plant doesn't have 10 landlords, you know, I mean, so the complication from my perspective is logistics, getting all the stuff done. So you look at title-serving environmental on a number of stores versus that plant across the street. That's where, in my mind, the complication comes and timing it all together. Because in many cases, you need landlord consent to do things. You've got obviously you have to finance it. The lenders are required in different things. And again, depending on how much the value may is or the value is per site, that also impacts how much you want to spend on each of these things, right? If you're buying your Paynotk, $200,000 is a location, that's not going to support necessarily the same amount of diligent costs and other things that you might, if you're paying a million of them, there's a location, right? So those are the things that we have to make the most sense out of and try to explain and get our clients comfortable that we're heading to the right level, whatever that is for a given transaction. So in that earlier example, would there be 10 franchise agreements or one? It depends on the system in some cases. It's 10 in some cases. It's one. Over time, franchisors have been heading more to multiple store franchise agreements versus one store, kind of like master leases in the landlord world. You know, it's easy. You don't have to cross the fall stores. They're just all defaulted if there's an issue, right? So, but it all depends what the system is and it depends how old franchise agreement is, right? Some of these franchise agreements often are 20 years, right? And then depending what state you are, a writer, no right to renew it. So if it's 20 year old franchise agreement, it may be, you know, a much simpler version than what's been developed over time as they've made the agreements tougher and tougher. Some systems require that you sign the then current franchise agreement if you assign it. So I'm just to sign the existing form system to system. Those are the kind of details that you work out as you go through the transaction. And how often do the parties want to own the real state versus if the preference to lease the real state? Many, many people would like to own the real state. The question usually comes down to their capital structure and their ability to control the real state. And so it's not so much a desire as is it possible or not real estate as you know, has gotten much more expensive over the last 20 years as well. And that ends up depending on how much you own ends up taking up a lot of capital in order to own a lot. So we see that it's fewer and fewer franchises that own a lot of fewer and fewer modern franchises own a lot of real estate. The groups that own more real estate tend to be groups that have been franchising for 20 or 30 years and have bought locations as they come along. And sometimes you see it also in again, cheaper areas, not so much in the coast, but in the middle part of the country where the land's a little bit cheaper, you see more of it. But again, if capital wasn't an issue, I think most people would like to control the real estate. That gives you a lot better control and certainty over your future than having to deal with landlords periodically. How negotiable do you see that the franchise agreements are, by the way? Very little. Sometimes new early on franchise hours are more willing to negotiate terms, but the existing long term franchise hours don't negotiate much of anything. Is that because they just have other options available that could sell it to somebody else or would it become an administrative nightmare? What do you think is driving their lack of willingness to negotiate or their unwillingness to negotiate? Well, I think the primary thing is that they have the terms they want in their forms and they want to stay with them secondarily, though for large systems, it does become operationally difficult. But remember, the older systems have multiple forms of franchise agreements because they, over every five years or something, I don't know, there's any rule of thumb, but over every reasonable period of time, they upgrade their franchise agreements. So, if I've been franchising for 20 years as a franchisee, I may have three or four different versions of a franchise agreement. And again, that's why, like I said before, when you assign some systems provide that if you're going to assign the franchise agreement to a new person, that that franchise agreement gets updated to the then current image because the then current image is always or in my experience, has always been more pro franchise or than they prior versions. What are some of the most common issues that you see in franchise agreements? Yes, from the franchisee's point of view. You know, depending if you're talking about development or just pure franchise agreement, the franchise agreement, for instance, closures, like I mentioned before, if can I just give you notice and close and move it somewhere else, is it what do I have to show you to close a store? And that, because that's what's taught is that you know, you sign a franchise agreement for a store or in a location, it's 20 year franchise agreement. Again, there's no saying, and maybe in any location today, 15 years later, it's not necessarily true that that's still an A, and maybe a C location then. So that is a big factor that you have to take into account. And you want systems that are flexible on store closures because the systems that are more flexible in store closures, typically that gives franchisees the better ability to keep upgrading their store counts so they don't have these stores that are costing them a lot of money. And you can have franchisees that are losing to a $300,000 location if they're not able to get out of stores. So anyway, that's, I would say closures are one, what they do, how well another, this isn't necessarily contractual, but it's practical, which is how well do they interact with the franchise e-bays? Things like that makes a big difference, right? As usually, is there a franchisee association within the group or within the franchise concept or not? Are they, how are they marketing? Do they market through co-ops where, you know, regional group gets together and they market that way? How is it being done? Is it large enough that there's national marketing or local marketing? What is the guarantee requirements? I mean, what kind of net worth do I have to have to develop or buy stores in all those things or factors that we look at? How much sway and power do you see the franchisee associations have within the system? You would think that kind of almost function like a union and be able to have some negotiating leverage over the franchise or? They're definitely not a union. They're an organized way to have franchisee's communication or thoughts formally communicated at the franchise or historically, I think, and again, this very system, the system, historically, I think franchisee's orders were more willing to engage with them. I think in the last several years, that's gotten a little more difficult. I think it's good to have a franchisee association and an active one and one that's involved and when they try to put a new franchisee agreement out to get some feedback from the system as a whole about what that's going to mean and how supportable it is or not. But it isn't, you know, there's no striking or anything. It's a very different thing. If franchisee's, if they want to push back an aggressive way, they mean litigation is or the threat of litigation, that's basically their remedy. There's no real striking. Is there a stigma, by the way, when the litigation ends up on the FDD? Is the franchise or terribly concerned about that? Franchisees look at litigation as well. That's another item that's closely looked at when you're deciding if you want to get into a system. There are some systems that are highly of the tigious, other systems, not so much. But yes, that's a factor. It's a factor. from my perspective, because it shows how willing the franchise areas to work with franchisees. I mean, most systems have the same, you know, issues of store closures, etc. But some systems are good at working through it quietly. Other systems are less good at working through it quietly. The systems that are, you know, where you see litigation many times at systems that are having material deterioration in cash flows, sales, and, you know, it's a scramble at the end. If that's not the case, then it's more dispute about how best to proceed, you know, is a vision, is everybody got a similar vision about what the store should look like. For instance, right now, coming out of the pandemic, people are saying, you know, go, how many people are going to eat inside a restaurant? So if you're talking about a quick service for restaurant, how big does a dining room have to be? Is there is more and more going to go through drive through carrier systems can have disagreements with the franchisees about how that looks. You know, what is the cost? I mean, is it going to cost the million dollars to build that new restaurant? It's going to cost a half million. Those factors all matter, right? And again, the push gets to be, again, the line made between revenues and who gets what? If I make it money on cash flow and you make it money on revenues, that all these issues can be. Tants because of that, right? You may say, I want you to build a big dining room because that maybe gives me a chance to have a little more revenue. And I can still push as much as I want out the window. But from my perspective, if you're adding another hundred or two hundred thousand dollars of cost in the building, that isn't necessarily a good use of my dollars. Another a similar topic that comes up with franchise agreements, generally, and systems as how quick or hard off and refresh has to be done within the system and how drastic that refresh is. So if you're going to want me to clean up my restaurants, like every five, 10 years systems usually do that, where they'll say you've got to spend certain amount on these type stores and sickle, lesser amount. And this, if it's a kind of a non-dining restaurant, it's even less because it's smaller and there's fewer people. But those are big factors, right? Because are you going to make me, if I'm at the end of the lease? So if I'm a year 19 of a 20 year lease and I'm up for a remodel, are you going to make me try to spend 200 grand on that remodel when we all know that I'm going to want to close that restaurant and you. Those are the kind of things that you end up having big discussions about. Or I'm at the end of the lease and I got two years less to my franchise agreement. Does it make sense to extend that lease, even though it's the stores not doing well? Now from the franchise or perspective, they want stores open as much as they can, right? From the franchise, the perspective, they're going to say, no, it doesn't make sense to do that. I really should have been out of this location two years ago. I shouldn't be stuck in it for another two years. So, you know, these are kind of day to day decisions that franchisees are working with. And again, closures are always a big thing because even if the franchise or says, yeah, you can close a location, you know, we still have to work away out with the landlord if we don't control the real estate. So I mean, and we have to deal with our lenders and other issues. So it's not, you know, overnight that it happens. But if you won't let me do it, you are causing significant financial hardship when they go forward. And depending the number of stores that are in that category, it can be material. What is you mentioned on your LinkedIn profile workout for those that don't know what doesn't work out? Let's say I'm a hundred store of franchisey. And I've got 30 million or 40 million dollars a debt. And the system has been down 5% so my evadage has been down, you know, it's going to be down more than that. Let's say it's down 15%. So my evadone that 100 stores, maybe it went with it's a hundred grand, you know, let's say you say my evadone is and I'm just going to pull a number up rather than do the math. But let's say he does down 3 million dollars. Well, all of a sudden I have potentially a cash flow issue as relates to my debt service as well as any kind of remodel expenses that I have. And then if it gets bad enough, I'm going to end up not being able to pay somebody either usually franchise or other lenders or landlords, right? Those are the big areas you can't shut off food or you won't get food. So you're working with those. So when that happens and now the sudden there's either a covenant, a financial covenant issue or a payment issue, then you have to work something out with all the relevant parties. So we call that generally a workout. Worst case scenario, you know, you can't work it out and it potentially ends up in bankruptcy. Most of the time, you can find a solution and you can just restructure the debt, mingere leases, come up with a deal with the franchise or hopefully close some stores. I mean, those are all the factors that you're looking in order to solve the financial problem that's been created. And so this is a life-saving option before bankruptcy is considered. Correct. A bankruptcy, a non-liquidating bankruptcy is a restructure to in a certain sense, right? But this is a non judicial restructure of existing debt, potentially leases and franchise agreements. Of those parties historically, who's the least amenable to work out? Who's the most difficult to agree to in terms of working it out? What I would say to that, if that depends again on the facts and circumstances at the time, if I, if can I'll be the operator in this case, if I'm a good operator, honest operator in the lender, franchise or in the landlords all think I'm not a bad guy, it's one thing. If one or the other of that group thinks I'm a bad guy, I'm not doing a very good job. So if you have that situation that puts you in a whole another category of problems, if the franchise or doesn't think I'm as good of a franchisee and they think that my problems are self-inflicted, they're not going to be easy to deal with. The lender thinks that I'm not, you know, not a trustworthy bar or they're not going to be worried a very easy to deal with. And landlords over time have gotten more and more difficult to deal with. Although in the last year, I think they've been reasonably, again, depends at least the least, but many have been relatively reasonable to deal with. So what I'd say is you got to decide any given situation, who's going to be your friends and as a bar or you want as many friends as you can have? Are most of these freestanding or strip centers? One of the other, but it depends system to system, right? So McDonald's are by and large freestanding. If you're looking at other, the pizza concepts, they're becoming more and more strip center based. So whether or not you are freestanding or strip center based also impacts the complexity or lack the rub of closing a transaction because if you're freestanding, the title survey environmental issues are more heightened than they are if you're in a strip center. So again, these are all factors that come into play at one step or other along a transaction. Well, John, you got me overloaded here. You're a wealth of knowledge would have come to this. So as we wrap up here, tell us who you can help and kind of who your ideal client is and how you can help them. Obviously, it's multi units, but can you kind of wrap up here in terms of the types of people you can help and how you can help those clients? Sure. So we typically get engaged by people that either are starting franchising or are looking to do a transaction, either a buy a cell refinance or having issues with their lenders, landlords or franchise or and that can be a very on the small side. We've started with people with one store and taken them up in the hundreds and we started with people that have a hundred stores that are going up by drooping. We've done all of that. So anybody in that that's interested in and moving from where they are to bigger or smaller is who we typically get involved in. And again, our approach is to try to get transactions done, I think I'm done at the best terms as possible for our client. That's our goals. Now, it seems like you play a little bit more of an involved role and perhaps that's due to your industry experience. If you were to help somebody in those two instances that you mentioned, what specifically would you be doing for those as an example? So what we do, it's actually a very good question. And I've got some of both going on right now. So I've got a group that are looking to buy into a new franchisee and they are not buying a new franchisee. They're creating a new franchise entity and they want to build 10 or 15 stores over time. And what we're doing for them is trying to set up a structure that makes sense. Give them alert them to the issues within the concept, try to advise them on what they can negotiate. You ask before about what's in franchise agreements and what you can negotiate. The other thing that you can talk about is in development agreements. So a franchise agreement is usually the operating agreement for a individual store or group of stores. A development agreement is basically an agreement that says you can develop, you know, a group of stores or a store. So maybe have a 10 store development agreement. The question is what are the terms of that development agreement? So on the front-end side, we're trying to advise about what the terms, what the franchise or is about what we see with their history, what the terms of their agreements are. And then again, depending if they're a more longstanding franchise or a more modern or newer franchise or then we decide how much if anything we can negotiate to try to improve the situation for our clients going forward. So in that case, we're trying to use our experience to try to help them understand what they're getting into and make sure that the concept that they're picking is fitting with what they want to achieve long term and short term, both from the profitability perspective and operating perspective, a development perspective and that there's some alignment between the potential franchisee and the franchise as it relates to concept and what they want to do. - Mm-hmm. - If you're saying, I'm a 100 store guy, or I'm representing a 100 storey person that's gonna go to a 200 or 300 store person, what I'm doing there is one, I'm trying to understand if that person is going to be somebody that is actually expandable from the franchise or perspective. In other words, are they operating under good terms with their franchise or how are they sitting with their lender and their landlords? 'Cause what's gonna likely happen, they're either gonna have to bring in somebody from the outside with private equity money or they're gonna have to refinance, but either way, they're gonna get due diligence done on their company and them individually to see if they will be able to leverage up in order to do the acquisition. And if they're performing well and they're meet all those tests, our chances of success are much greater than if they're not. And again, the new franchise or the existing franchise or, if you're gonna stay in the same system, they're looking at the same things, right? They're saying, okay, if Johnson franchisee is John very good at what he does, we want him to control more of our stores or do we don't like the fact that he controls 100 already? I mean, that's the things that you gotta look at. And we wanna try to get that organized on the front end. Then we start looking at structure, tax, exit planning in terms of when we set somebody up in the front end, we'd like to have an idea how it's gonna play out in the long term so we have made a good recommendation about structure versus, you know, sometimes a great structure may not be so great depending on what you want in the back end. So we try to figure that stuff out as well. So those are just a couple sets of issues that we look at depending on who you are, what you're doing. - Well, John, we appreciate you coming on the show. And if anyone needs to get a hold of you, your contact information will be on the show notes page on our website at workinandwestfield.com or they can reach out to you on LinkedIn, searching John Berg, B-E-R-G, and John, we appreciate you coming on the show. - Thank you, I appreciate your coming. (upbeat music) - M and A talk is brought to you by Morgan and Westfield, a nationwide leader in mergers and acquisitions for small to mid-market companies. 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