By Grant Marcks
It’s no secret that private equity firms love investing in franchisors. The economics are well-known, the royalty streams are recurring, and with a beautifully aligned business model comes beautiful growth. Some of that is driving activity in the industry, but drilling down to specific trends, franchisors in the service sector have seen even more consolidation and investment.
Compelling Opportunities – But Not Risk Free
There’s a good reason for all that activity. Service-based franchisors are generally asset-light, enjoy high customer loyalty and the recurring revenue that accompanies it, provide recession-resistant, non-discretionary services and can scale quickly.
That said, success is hardly guaranteed. When partnering with a franchisor, it’s crucial to get some basics right. Be sure the unit economics make sense, talk to franchisees to understand their pain points, expectations and openness to support and guidance along the way. Be wary of risks like regulatory changes or poor brand reputation. And be sure that the infrastructure exists (or can quickly be built) to allow for rapid expansion – otherwise your growth projections will be painfully optimistic.
Finding the Right Partner
Picking the right service sector franchisor to build, however, is critical. And choosing the right franchisor with whom to partner is just the first step. Getting the buildup right takes a lot of expertise, experience and resources.
Riverside’s ongoing build of EverSmith Brands, a provider of an array of services to commercial clients that currently has seven concepts, illustrates how transformative the consolidation trend can be.
EverSmith didn’t exist in December of 2020 when Riverside invested in Clintar, a Canadian provider of snow-removal and landscaping services. Just five years later, Clintar has grown into EverSmith, reflecting our thesis to build the industry’s first ever platform dedicated solely to commercially focused facility maintenance services.
Getting EverSmith on its meteoric growth trajectory took a lot more than sourcing and integrating acquisitions. It is a story of our commitment to excelling in the sector, building upon decades of experience and laying a foundation that allows us to move quickly and effectively along the way.
A big part of that is leadership. EverSmith CEO Justin Ghadery came up through Riverside’s Executive-in-Residence program, having served on the board of Best Life Brands, a Riverside franchise platform meeting senior care needs through six concepts. Mr. Ghadery started as COO of EverSmith and worked his way up. EverSmith’s marketing has been buoyed by Riverside Senior Director of Marketing Excellence Irene LaCota, whose significant franchise experience has helped EverSmith accelerate growth, adding more than 300 franchisees and more than 150 new territories last year alone.
EverSmith’s growth last year was also evident in corporate headcount growth from 77 to 117, alongside 11 internal promotions. It’s also a proud participant in the International Franchise Association and supporter of VetFran, the organization committed to offering veterans franchising opportunities.
The Importance of Add-Ons
Adding concepts is a lot easier through acquisition. That means finding the right add-ons and ensuring they’re successfully integrated. None of that is possible without tremendous operating resources and deep franchising industry experience.
Part of that experience means choosing the right franchisors with whom to work. Riverside has had some missteps and learned from past mistakes, and it’s clear that not all franchises are potential growth engines.
Concepts that work
Riverside strives to find or create great brands with powerful stories that create meaningful wealth opportunities for franchisees. Becoming a franchisor should be much more than “buying yourself a job.” The best franchise brands provide a chance for people to make an investment that pays back as a wealth-creation opportunity that encourages entrepreneurship.
We like to think that other franchisor service brands in Riverside’s portfolio fit this bill. The aforementioned Best Life Brands has added four concepts since Riverside’s investment. Head to Toe Brands, a franchisor of salon concepts, has added three, and Threshold Brands, a franchisor of home care concepts, has added seven concepts since Riverside’s original investment. Evive, a provider of non-medical homecare services, has added six concepts under Riverside’s tutelage.
These stories share a common thread that goes beyond the industry trend of consolidation and private equity investment. They illustrate a commitment to rapid growth based on a commitment to franchising that dates back to Riverside’s first franchise investment – a small provider of household services brands called The Dwyer Group. That company grew to a multibillion-dollar national brand in Neighborly through three separate Riverside holds.
The Future is Bright
It’s likely that this trend of consolidation of service franchisors will continue or even accelerate, as the overall M&A market keeps thawing and private equity firms need to put dry powder to work. This can give optionality to entrepreneurs and their brands to take some liquidity and de-risk themselves, while continuing to participate meaningfully in the upside and helping their businesses grow. Franchisors get access to experienced capital with meaningful operating resources as they continue to scale. It’s an exciting time and we’re delighted to continue to play an active role in this wonderful industry.