The Australian franchising sector is set to drive more M&A activity and private equity deals, according to a leading franchise lawyer. Partner at Norton Rose, and national head of the Australian retail trade & distribution group, Stephen Giles, has a number of deals on the go at the moment, involving both multiple franchises and private equity firms.
“Even though the broader capital market is saying it’s quiet, within the franchising sector it’s very lively,” said Giles. “The maturity of the sector and the fact that there have been a number of successful private equity firms involved in capital raising deals has further validated the market.”
Franchisors are using private equity to assist with expansion and development, and private equity firms are developing an appreciation and understanding of the franchise sector, which can be a highly lucrative. “Franchises were previously seen as an alternative to capital raising, but in recent years it has been a challenge to find new franchisees, because of low unemployment, a drop in migration and a tighter credit market,” said Giles.
The deals where franchisors sought out private equity firms tended to be more successful, according to Giles, “because they have use for the funds”. However, finding suitable private equity firms is proving to be as difficult as finding new franchisees. “I have probably got more potential deals on my desk than I have private equity participants to invest in the franchises,” said Giles.
With more than 1,100 franchises listed in Australia, most with less than 25 franchisees, it’s not surprising that some consolidation is also occurring in the market. A number of mergers and acquisitions, such as the acquisition of Mobil filling stations by 7- eleven, have occurred in the past year, and Giles said it was likely to continue as companies look for better economies of scale.
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