Patrick Galleher is the Managing Partner of Boxwood Partners, an investment bank in Jupiter, Florida, where he leads sell-side transactions.
Last year, the International Franchise Association’s 2024 Economic Outlook reported private equity having a “transformative” impact on the franchise landscape, noting that the dynamics of business expansion and operational strategies were being reshaped. The franchise industry ended up exceeding projections for the year, experiencing 2.2% growth. Private equity’s significant capital helped to fuel that momentum.
In 2025, franchises are still highly desirable for investment, offering strong growth potential, stable cash flow and strategic opportunities. In fact, private equity has been paying strong multiples to buy and invest in franchises over the past 10 to 15 years. The franchising model is attractive because it offers the potential for recurring revenue streams, which can provide a predictable and stable income. Additionally, risk is spread out by transferring operational duties and ownership to franchisees. The royalty-based structure allows for easier scalability and requires less upfront capital, as expansion costs are partially covered by the franchise network itself. The free cash-flow dynamics of franchisors, the relatively high EBITDA margins at the franchisor level and the economies of scale with little staffing produce systemwide sales and cash flow.
This year’s annual report from the IFA forecasts that franchise GDP will keep increasing, with franchising growing faster than the broader U.S. economy, which the Congressional Budget Office projects will grow 1.9%. Total franchise output is projected to exceed $936.4 billion, increasing by 4.4%. Interestingly, personal services and retail food, products and services are expected to be the fastest-growing industries in 2025 fueled by heightened consumer demand and the emergence of specialized niche markets within personal services.
The Role Of Technology
Franchisors that align their strategies with emerging trends, such as AI-driven efficiencies and enhanced digital capabilities, are well-positioned to attract investment and thrive in a competitive marketplace.
For retail franchises, AI and machine learning are expected to optimize inventory management and sales forecasting, aiding supply chain efficiency and shrinkage reduction. Generative and predictive AI are also being leveraged for hyper-personalized shopping experiences that enhance customer loyalty. Integrated physical and digital platforms, such as online reservations and in-store pickups, create more seamless shopping experiences.
In the restaurant industry where takeout and digital ordering are significant revenue segments, franchises are adopting AI-powered predictive ordering platforms and delivery systems. I’m seeing companies reducing labor demands and enhancing service consistency by implementing voice automation in the drive-thru process and robotic assistance in the kitchen.
It’s not just retail and restaurants. Franchises across industries are embracing technological innovation to enhance their operations, improve customer experience and increase efficiency. Automation of routine tasks such as payroll processing and financial reporting is significantly reducing overhead costs and simplifying operations. With the rise of more digital tools including e-commerce platforms, mobile apps and online ordering systems, franchises also have more data-driven insights that give them a competitive edge in customer retention and brand loyalty.
Culture Building And Franchisee Satisfaction
Private equity and strategic buyers are focusing more on culture building and franchisee satisfaction, recognizing these as drivers of long-term success.
From what I’ve seen over the years, happy and successful franchisees are more likely to remain loyal, adhere to brand standards and help grow the brand by opening additional locations. Private equity firms understand that franchisee success is tightly tied to the system’s overall success, and systems that promote empowerment and collaboration with franchisees will be better positioned for sustainable growth. Franchisors that invest in creating a strong, supportive culture with regular training, business development and marketing support for their franchisees tend, in my experience, to perform better over time.
However, unit-level economics are the ultimate key performance indicator. If franchisees aren’t making money, the franchisor is not going to keep growing. During the due diligence process, private equity firms look at how many franchisees are buying multiple locations and how fast they open those locations under a development agreement. They are also looking at the conversion rate of store locations that are sold and opened. As intimidating as the private equity process may be for franchisors, the jargon and statistics that are a part of everyday franchise life are just as opaque to investors. They are really looking at the end KPIs.
More Than Franchisors
Investors seek stability and growth potential, key attributes of many franchise systems that represent an opportunity to build long-term value and drive growth through technological innovation and operational excellence.
The franchise model continues to appeal to many PE portfolios looking for stable, high-profit opportunities. With a favorable economic outlook and a continued focus on technology and culture building, I believe successful franchise brands will remain compelling targets for acquisition in 2025.
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