This Global Franchise Magazine Article Says Lease Diligence in Franchise M&A is Essential and it's not wrong!
“One of the most daunting parts of buying or selling hundreds of units is reviewing hundreds of existing leases with landlords. There’s no getting around the enormity of this task.” TRUE.
A recent Global Franchise article asserts that the large-scale M&A deals dominating franchising today will continue apace into the next decade, with larger franchisees acquiring smaller shops and private equity buying into franchise groups across the U.S. market. Even in the current volatile economy, an article posted in Franchise.com on June 17, 2022, predicted that “franchises’ economic output is expected to increase by another 5% [over 2021] to more than $826 billion, surpassing 2019 levels. . . we project franchises will add another 257,000 jobs to the U.S. economy, an increase of 3.1% over 2021. We also predict the number of franchised establishments will increase by 2.2%, outpacing the pre-pandemic rate to add about 17,000 new locations in 2022.” Yet should the economy turn, acquisitive franchise teams and their investment partners won’t miss the opportunity to snap up temporarily distressed franchise assets. When you’re considering a Big Deal, Global Franchise reminds us that “very few companies have experience navigating the cascade of legal, financial and real estate contracts experience required to bring such a sizeable transaction to a successful close in a timely manner.” To close a successful deal, whether you’re investing, acquiring, or selling, Global Franchise identifies three must-have resources: M&A legal counsel experienced in multi-unit franchise transactions; a similarly experienced investment banking or finance partner; and organized and complete lease records.
Anyone who’s managed more than a handful of leases knows the importance of easy visibility into lease terms without having to dig through a folder of pdfs. Most legal teams do not have the staff or the expertise to organize and summarize lease portfolios, and counsel’s high hourly fees may be better spent on structuring the transaction anyway. An experienced lease management team can enhance your deal team by providing customized diligence review of leases, organizing lease and location files, and, if appropriate for your deal, maintaining lines of communication with landlords so when maintenance needs or option renewals come around, you have a relationship foundation with your landlords. An effective lease management partner also coordinates with your legal and finance teams to avoid duplicating efforts and provide materials responsive to the deal team’s specific needs.
Whether you’re preparing for an M&A transaction in the near-term or you just want to be ready to go when the right opportunity appears, your team might “be wise to start compiling, reviewing and organizing [lease] records – and patching any holes – so a small detail doesn’t turn into a major roadblock.” Can a lease management partner carry some of the lease diligence load so your team can focus on closing?
About Property Works
Property Works has been an industry leader in real estate and lease portfolio management for over 20 years, providing support to companies with multi-unit locations across a range of sectors including restaurant and retail. Since 1996, we’ve handled the portfolios of numerous Fortune 500 companies, as well as small businesses.
Contact Property Works’ Transaction Support Services Team today for more information on the benefits of partnering with us. https://www.propertyworks.com