- Increased Regulator Oversight of the Franchising Industry at State and Federal Levels – Along with possible changes to the Federal Trade Commission’s (FTC) Franchise Rule as a result of its 10-year review, expect to see federal legislators advocating for increasing enforcement of it and strengthening the rule in several areas. These include advocating for mandatory financial performance representations in Item 19 of the Franchise Disclosure Document (FDD), and prohibitions on certain contract terms, disclaimers, and disclosures outside of the FDD. We can also expect continued state legislative efforts to introduce regulations governing franchises generally and in certain segments such as custodial services, guest lodging and restaurants.
- Extraordinary Level of Merger & Acquisition (M&A) Activity Expected to Continue – Pent up demand for these transactions from 2020 fueled a huge increase in 2021 for franchise acquisitions in virtually all industries that is expected to continue into 2022. With plenty of cash in the market, low interest rates, and many franchisors having successfully navigated the pandemic, demand is tremendous. As a result, sellers are continuing to see historically high multiples used to value businesses and calculate purchase prices.
- Roll-Ups are Ramping Up – Roll-ups, which involve the acquisition of smaller businesses offering complimentary services or products, are becoming popular in the franchise industry as franchisors look to leverage the success of their management team and maximize value for their franchise network by expanding into new sectors.
- Employee Shortage Crisis Puts Many Franchisors in the Recruiting Business – While franchisors have distanced themselves in the past from risky involvement in their franchisees’ hiring activities, the national worker shortage has driven many to take measures previously deemed "too risky," such as hosting job fairs on behalf of franchisee and company-owned stores and designing other programs to help retain staff for their stores.
- Evolution of Selling Products via Alternative Channels is Reaching Refinement Stage – With many franchises having implemented new ways of creating and selling their products in the COVID-19 pandemic – such as mobile ordering, ghost kitchens, and automated staffing help – both they and their customers have become comfortable with the related technology. Expect to see more refined versions of these services and channels as franchises look for heightened efficiency and economies of scale.
- Continuing Advancements of Host Kitchens – Restaurant franchisors are helping their franchisees that have extra capacity by making deals for them to use their kitchens to prepare and sell menu items under another brand for delivery. It’s a win for the franchisee ‘host kitchen’ that receives extra revenues and a win for the other brands as they can often use this distribution channel to expand into new geographic areas with little investment.
About the Authors
Named Law Firm of the Year for Franchise Law by U.S. News – Best Lawyers 2021, Greenberg Traurig, LLP attorneys are some of the most experienced legal talent working in the franchise industry. The firm’s Franchise & Distribution Practice draws on the deep transactional, regulatory, litigation, and intellectual property experience of its dedicated attorneys to advise regional, national, and international franchisors, manufacturers, and distributors in the many aspects of franchising and distribution.