🍟 3/13/2023 – Riding The Silver Tsunami – Franchise Style
The Silver Tsunami
The silver tsunami aka The Gray Wave aka The “Great Wealth Transfer” refers to the plethora of small businesses owned by baby boomers, who will all be retiring in the next 12-15 years.
When they retire, they will either be closing their business, passing it on to a family member, or (and here is the opportunity for us younger generations) selling it to a new owner!
Most conversations around this are from the search fund community, a growing class of people looking to acquire independent small businesses. While I’m a big fan of the movement, I think search funds focused on acquiring franchises offer higher upside, and “easier” growth prospects (easier is in quotes because of course, none of this is truly easy).
Why do I think acquiring franchises is easier than independent mom & pops?
Two key reasons:
- Deal access
When you buy a franchise, you become a member of a closed network of business owners that own the exact same business as you i.e. other franchisees.
Within bigger franchise systems, there can be hundreds or even thousands of franchisees who may be looking to sell their locations at any point. That means you, a member of that exclusive business owner network, can get access to the opportunity well before it ends up on a BizBuySell or other SMB marketplace.
The traditional search fund ethos is you have to hunt for deals, but once you get into a franchise system, if you do things the right way, the deals come to you.
When you’re acquiring franchises under the same brand, every single location uses the same:
- Supply chain
- Operating model
- Marketing playbook
The list goes on….
This is not the case if you’re buying businesses from mom & pops. The brands are different, the tech stacks (if any) are different, and ultimately it’s a less unified portfolio.
Franchise acquisitions are truly rinse & repeat.
Silver Tsunami By The Numbers
Hopefully I’ve got your attention that acquiring franchises makes your life easier from a deal flow and operating point of view.
But let’s take a look at the numbers of the silver tsunami so we understand the magnitude of this ownership shift.
How Many Businesses Are Up For Grabs?
According to a report by the California Association of Business Brokers, baby boomers are expected to sell a whopping 12 million privately owned businesses
How Much Are These Businesses Worth?
Collectively, they represent roughly ~$10 trillion in value. Each business of course differs, and ranges from small mom-and-pop operations to larger corporations.
When Will These Businesses Be Sold?
Over the next 10-15 years, with some reports suggesting that 70% of businesses are on pace to sell to unrelated third parties by 2028. Only ~20% of owners had a formal succession plan in place
How Do Franchises Fit In?
At the end of the day, franchises are small businesses. So all the stats listed above are inclusive of franchise owners. Here’s the key breakdown relevant for franchises only:
What percentages of small businesses today are franchises?
There are roughly 800,000 franchise establishments – meaning the total number of brick & mortar locations and service based businesses being operated. This means about 10-12% of all small businesses are franchised.
How many franchises are sold on average each year?
Between 3-5% of franchise units are typically transferred every year. Using that 800,000 number, this means that going forward we can expect 24,000 – 40,000 existing franchises changing hands on an annual basis.
But don’t be surprised if the number of franchises sold increases, as baby boomers selling into retirement accelerates from this point onward.
How To Capitalize On This
If your goal is multi-unit ownership, acquiring franchises may be the quickest + “easiest” way to reach scale.
As I said earlier, franchises offer operational repeatability, and near guaranteed deal flow access that you can’t find elsewhere.
But don’t just let my theory do the talking. I’ve already spoken to enough franchise owners via the Franchise Empires podcast who are doing this already:
- Brian Beers has acquired 30+ Midas’
- Lucas Mitchell has acquired 13+ Five Guys
- Michael Horowitz has acquired 20+ Wingstops
- Zac Pennington has acquired 8+ Anytime Fitness’
And then of course legends like Greg Flynn and CMG Holdings have been doing this for multiple decades and now have hundreds of millions (or billions in the case of Flynn) in revenue to show for it.
The commonalities that they’ve shared is this – find a brand that has been franchising for decades. This is for 2 reasons
- On average, brands with lengthy history have a much higher chance of being around in 10 years then an upstart brand
- Brands that have been around for decades have numerous owners – so from a pure numbers standpoint, it’s more likely that there are franchise owners in those brands looking to exit
I’ve already developed a mini shortlist of brands across a variety of investment ranges and industries that could be ripe for this strategy.
And remember, the goal is multi-unit ownership with these brands, because that’s where the economics become attractive for franchisees:
- Sport Clips – Franchising since 1996, Sport Clips is a hair salon franchise with 1,895 locations in the U.S. that cater to men and boys
- Jimmy John’s – Franchising since 1993, Jimmy John’s is a fast-casual sandwich restaurant franchise with 2,657 locations in the U.S
- Marco’s Pizza – Franchising since 1985, Marco’s Pizza is a pizza delivery franchise with 1,103 locations in the U.S.
- Firehouse Subs – Franchising since 1995, Firehouse Subs is a fast-casual sandwich restaurant franchise with 1,221 locations in the U.S
- Liberty Tax Service – Founded in 1997 and franchising since 1998, Liberty Tax Service is a tax preparation franchise with 2,683 locations in the U.S
- Budget Blinds – Founded in 1992 and franchising since 1994, Budget Blinds is a window coverings franchise with 1,378 locations in the U.S.
- Mathnasium – founded in 2002 and franchising since 2003, Mathnasium is a math education franchise with 1,108 locations
If you’re employing an acquisition strategy in the franchise space and have any input, feel free reply to this email – I’d love to hear from you!
Big Blue Swim School Founder Wants to Double Unit Count in 2023
Chris DeJong wants to have 40 Big Blue Swim Schools operating by the end of 2023. It’s an ambitious goal for the founder and CEO, one that would mean more than doubling the number of swim schools open today.
The Chicago-based franchise has 19 locations spread across Illinois, Colorado, Georgia, Michigan, Missouri, New Jersey, Texas, Utah and Virginia. It has 220 locations sold to franchisees, and the next step, according to DeJong, is to speed up the openings.
Celebrating Female Entrepreneurs And Women’s History Month 2023
Women have made significant contributions to franchising and continue to be a force in its growth. Women have held leadership roles in every area of franchising: as founders, CEOs, franchisees, and more.
The Wolf of Franchises is a platform for franchise entrepreneurs of all genders, colors, etc. If you’re a female entrepreneur, please reach out (just reply to this email) as I’d love to help tell your story, so that more badass women out there can be inspired by it!
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