Mergers&AcquisitionsinFranchising:

Strategiesfor2011andBeyond

CoAuthoredby:

ANDREW SHERMAN BURT YARKIN

Jones Day The McLean Group
51LouisianaAvenue,NW 201SpearStreet,Suite1100
Washington,DC20001 SanFrancisco,CA94105
(202)8793686 (510)4446195
ajsherman@jonesday.com byarkin@mcleanllc.com
 White Paper Mergers & Acquisitions in Franchising

Mergers&AcquisitionsinFranchising:
Strategiesfor2011andBeyond

TheM&Amarketisfinallypickingupaftersomeofthetoughestyearsinrecentmemory.Thegoodnewsforthoseinfranchisingis
thatthereissignificantinvestorinterestinthefranchiseindustry.Thispaperwilladdress:keyfactorsdrivinginvestordemand;exit
planningconsiderations,andvariousduediligenceissues.

From2003to2010,dozensofsignificantM&Afranchisingtransactionshaveclosedandthetrendappearstobeaccelerating.Most
franchisorsinfactarebecomingmoreattractiveacquisitioncandidatespreciselybecausethecapitalmarketsincreasinglyare
focusedonqualityoverquantity.

Awidevarietyofindustriesandtransactionsizeshavebeenrepresented,including:HollywoodTours,JohnnyRockets,Service
Master,CartridgeWorld,theDwyerGroup,BackYardBurger,MacaroniGrillandAuBonPain.Thesecompanieswere
acquiredbyotherfranchisors,privateequityfundsorotherbuyers.Themostsignificanttransactionsincludedthe$2.43billion
purchaseofDunkinBrands(includingDonuts,BaskinRobbinsicecream,andTogossandwichshops)byBainCapital,ThomasH.
LeePartnersandCarlyleGroupfromFrenchconglomeratePernodRicard;theBlackstoneGroups$26billionacquisitionofHilton
Hotelsfollowingits$3.4billionacquisitionofLaQuintaInns;Triarcs$2+billionpurchaseofWendysand3GCapitalManagements
and3GSpecialSituations$4.2billionacquisitionofBurgerKingHoldings,Inc.,ata9.1EBITDAmultiple,andTZPCapitalPartners
andTZPGroups$150millionacquisitionofTheDwyerGroup(furtherdetailsunreported).

Twokeyfactorsdrivehighfranchisingvaluationstoday.TheWallStreetJournalreportsthatprivateequitygroupshavemorethan
$500billionincashandstrategicbuyershavemorethan$2trilliontoinvest.This$2.5trillionindrypowdercreatespentup
demandtherebydrivinguppricesbecausebothgroupsareunderpressuretoinvesttheircash.Privateequitygroupsmust
investtheircashorreturnittoinvestors.Strategicbuyers(oftenpubliclyheld)alsoarepressuredtoinvestorreturncashto
shareholdersviadividends.Bothgroupsareseekingqualitybrandsthatarescalable.Bothgroupsarewillingtopayattractiveprices
forsuchbrands.Aneffectiveauctionprocessinvolvingmultipleinvestorgroupscompetingtoacquiresuchacompanyshouldrealize
apremiumpricefortheowner(s).

Additionally,whileobtainingsmallbusinessfinancingremainshighlyproblematic,commerciallendersremainwillingtofinancelarge
acquisitions(banksfinanced70%ofonerecentlargetransaction).Theavailabilityofbankfinancingforlargeacquisitionsenables
privateequityfirmstouseleveragewhilepayinghigherpricesforlarge,highqualityfranchisors.

Whilelarge,highqualityfranchisorscantakeadvantageofsuchopportunitiesasourfinancialmarketsthaw,smallerfranchisors
continuetofindM&Adrivenexitstrategieschallenging.Thisreallyisataleoftwomarkets.Withmostprivateequityorstrategic
buyersdisinclinedtoconsider(letaloneclose)smallertransactionsthattypicallyboastEBITDAsoflessthan$3millionto$4million,
smallerfranchisorsmustdealwithadifferentgroupofpotentialinvestorsthattypicallyincludeshighnetworthindividuals,local
buyers,andotherfranchisorsseekingtoaddabrand.Commerciallendersrarelylendtothesesmallertransactions.

DistinctvaluationvariationsbetweenlargeandsmallfranchisetransactionsarenotuniquetofranchisingM&Atransactionsbut
rathercanberecognizedacrossmanymiddlemarketbusinesssegments.

Inlightofcurrentmarketconditions,somefranchisorshaveeschewedM&Aexitsinfavorofrefranchisingturningcompany
ownedunitsintofranchises,includingthesaleofoperatingassetstoraisecashandmanageoperatingexpensesandcapital

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expenditures.WellheeledmultiunitoperatorfranchiseescanpurchasePizzaHut,HardeesandApplebeesunitsatattractive
terms.Meanwhile,somemultiunitfranchiseoperatorsthemselveshavebecomeacquisitiontargetsforsuchprivateequityfirmsas
SentinelCapital,OlympusPartnersandRoarkCapitalGroup.

RoarkCapitalGroupinfacthasfocusedonfranchisors,buyingacontrollingstakeinCarvelin2008.Carvelslargestcompetitor,
DairyQueen,wasacquiredbyWarrenBuffettsBerkshireHathawayjustafewyearsearlier.InpartnershipwithFOCUSBrands,
Roarkownsorcontrolsawidevarietyofhouseholdnamefranchisors,including:Schlotskys,Cinnabon,MoesSouthwestGrill,
FastSigns,Wingstop,andBatteriesPlus.Withmorethan$1.5billionincapitalundermanagement,Roarkcontrolsmorethana
dozenfranchisorsgenerating$3billioninsystemwiderevenues.

LikeRoark,manyprivateequityfirmssuccessfullyhaveinvestedinfranchisingovertheyearsandmostPEGsactivelyareseekingto
makeadditionalfranchiseinvestments.LargePEGsthathaveyettoinvestinfranchisingarefindingthespacemorecompellingas
theyconsidermakinginvestmentsintheindustry.

AsanalternativetoM&Atransactions,manyfranchisorsarepursuingrecapitalizations,restructuringsandmanagementbuyouts.
Recenttransactionsinclude:ComfortKeepers(a$44millionbuyout),MeinekeCarCare(a$128millionmanagementledrecap),
WorldwideExpress(a$15millionbuyout)andCoverall(a$59millionmanagementledbuyout).Forrecapitalizationfundsand
resources,thecharacteristicsthatmakefranchisorsattractiveM&Acandidates(e.g.,strongbrands,unitdiversification,market
protection,predictableanddurablecashflows,etc.)alsoareattractivetotransactionalequityanddebtcapitalproviders.
Franchisorsthatparticipatedinfranchiseconceptslaunchedupto20or30yearsagoarepursuingtypesoffinancingtransactions
verycarefullyasbabyboomerspreparetotransferownershiptothenextgenerationorselectmanagementgroupsasanalternative
totraditionalM&A.

Traditionally,mostrecapitalizationsweremajorityrecapitalizationsrequiringentrepreneursandfranchisorstocedemajoritycontrol
totheirinvestors.Today,someprivateequityinvestorsarewillingtoundertakeminorityrecapitalizationsfortherightbrands.
Whilevaluationisimportantinrecapitalizations,therightfitismostimportantforallparties.Therightpartner/investorcanhelp
accelerategrowthandincreasereturnsforfranchisorandinvestorsalike.

Franchisorsarejustassusceptibleasnonfranchisecompaniestocompetitivepressures,shiftsindemandanddemographics,orthe
needtorespondtochangesinlawortechnology.Mergerswithoracquisitionsbycompetingorcomplementaryfranchisesystems
constituteaviableresponsetosuchpressures.FranchisorsmostcommonlyconsiderM&Atransactionswithotherfranchisors(and
nonfranchisecompaniesconsiderfranchisesystemsviableacquisitiontargets)basedon:

Thedesiretoaddnewproducts/servicestoexistinglineswithoutincurringtheexpenseoruncertaintyofinternal
researchanddevelopment.

Thedesiretoaddressanewgeographicmarketorcustomerdemographicwithoutincurringtheexpenseofattracting
newfranchiseestotheselocationsordevelopingnewadvertisingandmarketingprograms.

Theneedtogrowrapidlytomoreeffectivelycompetewithlargercompaniesortoeliminatethethreatposedbya
smallercompetitor.

Thedesiretoincreasemarketefficienciesbyacquiringsuppliers(backwardintegration)orexisting
franchisees/distributors(forwardintegration),and

Theneedtostrengthenmarketingcapabilitiesorimprovemanagementdepthandquality.

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MyriadcomplexlegalandbusinessissuesarisewithanycompanysM&Atransaction.Thisisespeciallytrueforfranchisorsthat
mustaddressnotonlyissuesrelatedtotaxes,securitiesregulation,laborlaws,employeebenefits,antitrust,environmental
regulation,corporategovernance,bankruptcyandantitrustcompliance,butwhoalsomustfullyunderstandthenatureofthe
franchisesystemsassetsbeingacquiredandtheuniquerelationshipsamongfranchisorandfranchisees.

Franchisorsconsideringtheirfirstacquisitionmustunderstandthatthetransactionisaprocessnotanevent.Themanagementof
theprocess,thequalityofthefranchisor'sadvisorteam,andaclearunderstandingofthefranchisor'stransactionalobjectivesallare
criticaltoensuringthatthecompleteddealultimatelysucceedsforthefranchisor,shareholdersandtheoverallsystemalike.A
painstakinganalysisastohowtheproposedtransactionmayaffectfranchisorfranchiseerelationshipsincludingpotentialbrand
dilution,theoverlapofterritorialrights,andpotentialconsumerconfusionaboutposttransactionproductandservicemixesis
absolutelycriticaltosuccess.

Manyinvestmentbankingfirmshaveentiredepartmentsdevotedtoexitplanningorcapitalinfusionpreparation.Clarifyinggoals
andobjectivesatthebeginningofanexitplanshouldeaseaprocessthatisoftenhighlycomplexanduniquetoaspecificbusiness
andindustry.

Afranchisorthathasgrownsignificantlywhilerealizingstrongearningsmaybelievethisisagoodtimetosellandthusmaybegin
engaginginvestmentbankerstolaunchtheprocess.Companiesthathavestruggledinrecentyearsmayprefertorebuildearnings
beforelaunchingasalesomeyearshence.Someentrepreneursandownersmayprefertocompletearecapitalizationnowtogaina
partnerthatcanhelpscalethebusinesswhileallowingthemtoexitlater.Indepthdiscussionsledbyanexperiencedbankercan
helpclarifyobjectives,therebycreatingaroadmap.

Oncethefranchisorsobjectivesandgoalsareclarified,itisimportanttodeterminethecompanysvalueandanalyzevalue/risk
drivers.Aninitialvaluationwillcreateabaselineagainstwhichtocomparefuturevaluationsandcompanyprogress.

Thorough,periodicvaluationssubsequentlywillconstituteusefulstatusreportshighlightingvaluedriversandareasinwhichthe
companyhasrealizedorstillneedsimprovement.Typicalvaluedriversaddress:earningspotential,qualityofearnings,projected
performanceand,ofcourse,risk.Valuedriversallowownerstoestablishstrategicandtacticalplanstogrowtheircompaniesinto
highlyattractivebusinessesinadvanceoftheireventualsales.

Athoroughanalysisofthefranchisorsbusinessvaluationcanenableownerstobettermanagetheircompaniestoperformoptimally
againstsuchmetricsas:

Ahighlyexperiencedmanagementteamthatisnotoverlydependentonasinglemanagerorowner.

Steadyrevenueandprofitgrowthrates.

Productand/orserviceexcellencethatmakesthecompanyaleaderinitsbusinesssector.

Barrierstoentrythatdiscouragecompetition,and

Abroadclientbasethatminimizesoverrelianceononeormoreofthecompanystopcustomers(amongothervaluedrivers).

Implementingvaluedriverbasedmetricslikelywillincreasethecompanysongoingprofitswhilesteadilybuildingitsvalue.

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Preferably,ownersshouldbeginplanningexitstrategiesonetothreeyearsinadvancetoallowampletimetogrowtheircompanies
investmentvalues.Inadditiontoidentifyingvaluedriversanddevelopingtheirbusinessesbasedonthosedrivers,franchisorsalso
mayundertakeanumberofpresaleinitiativesthatshouldsubstantiallyenhancetheirbusinessessalability,including:

CreatingtightfinancialcontrolsandfinancialtransparencysmallerfranchisorsmayneedtohireaCFOearlyinthe
processtoprepareatransactionsfinancials.

Establishinganeffectivemanagementteambuyersaremorelikelytopayapremiumforabusinessiftheyareconfident
theacquiredcompanysmanagerswillremainwiththemergedcompanytosuccessfullyexecutethepostacquisition
transition,minimizingrisksthatarisefromwholesalemanagementreplacement.

Committingthemanagementteamtostaywiththecompanyafterthesaleifappropriate,arewardsystemto
encouragethisshouldbeinstatedassoonaspossible.

Clarifyingmajorcontractualrelationshipswithcustomers,suppliers,landlords,etc.

Registeringandprotectingtrademarks,patentsandcopyrightswhileallfranchisorsshouldhavemarksinplace,many
maywanttoacquiretrademarksinkeyinternationalmarketsforfutureexpansion.

Seekingfavorablemediacoverageforthebusiness,products,servicesandpersonnelbyretainingaqualifiedPRfirm.

ReviewingandensuringcompliancewithOccupationalSafetyandHealthAdministration(OSHA)policies,and

Ensuringalllicenses,permits,franchiseandtaxregistrationsareinorderbuyersoftenmaywantalegalopinion.

Eventhoughacompanymayhavediligentlyallottedasignificantperiodoftimetoprepareforsale,manyunexpectedissuescan
arisethatcanhinderorhaltnegotiations,including:

Changesinthemacroeconomy.

Forcemajeureeventslike9/11.

Changesintheoutlookofthecompanysindustry.

Salesofoneormoresimilarcompaniesatunexpectedlylowprices,and

Suddennegativechangesinthecompanysfinancialand/oroperationalperformance,etc.

Properlypreparingtoaddresssuchissuesgenerallyintheeventtheyariseshouldincreaseasalesprocessefficiencywhilehelping
maximizevalue.Companiesconsideringarecapitalization/capitalinfusionthataddresssuchissueslikelywillengenderconfidence
amonginvestorsthatmaytranslateintoamoreeasilyandmorelikelyconsummatedinvestment.

Companiesthatengageaninvestmentbankerearlyintheprocesslikelywillbenefitfromthebankerseffortstofacilitatean
effectiveexitplanningprocess.Theinvestmentbankercanhelpthecompanyclarifyobjectives.Theinvestmentbankeralsocan

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provideaninitialvaluationandperiodicupdates,makerecommendationsaddressingweaknesses,andhelpdeterminetherighttime
toseekacapitalinfusionorsaleofthebusiness.

THE BUYER'S PERSPECTIVE: CONDUCTING DUE DILIGENCE

Franchisorsconsideringamergeroracquisitionshouldbegintheprocessbyidentifyingtransactionsobjectivesandpotentialtarget
companycriteria.Aviableacquisitiontargetmay:

Operateinanindustryhavingdemonstratedgrowthpotential.

Havetakenstepsnecessarytoprotectproprietaryaspectsofitsproductsandservices.

Havedevelopedawelldefinedandestablishedmarketposition.

Possessdurableandconsistentfranchiseagreementswithfranchisees,includingminimalamendmentsor"special
exceptions."

Havegoodfranchiseerelationshipscombinedwithstrongcustomersatisfactionandbrandloyaltytofranchiseescore
productandserviceofferings.

Beinvolvedinaminimalamountoflitigation(especiallyifthelitigationiswithkeycustomers,distributors,franchiseesor
suppliers).

Bewellpositionedtoreadilyobtainkeythirdpartyconsentsfromlessors,bankers,creditors,suppliersandinvestors(as
required);thefailuretoobtainnecessaryconsentstotheassignmentofkeycontractsortoclearencumbrancesontitle
tomaterialassetsmayseriouslyimpedetheclosingofatransaction,and

Beinapositiontosellsothatnegotiationsfocusonthesaletermsratherthanwhethertosellinthefirstplace.

Inadditiontostrategicandpostintegrationissuesdiscussedabove,thefollowingissuesshouldbeanalyzedwhenevaluatinga
franchisesystemspotentialacquisition:

Thestrengthandregistrationstatusofthetargetstrademarksandotherintellectualproperty.

Thequalityofthetargetsagreementsandrelationshipswithitsfranchisees.

Thestatusofanylitigationorregulatoryinquiriesinvolvingthetarget.

Thequalityofthetargetsfranchisesalesstaff.

Thequalityofthefranchiseerelationships,includingtheregularityofthefranchisorscashflowfromroyaltyobligations.

Thestrengthofthetargetfranchisorstraining,operationsandfieldsupportprograms;manuals,andpersonnel.

Theexistenceofanyfranchiseeassociationanditsrelationshipwiththefranchisor,and

Thestrengthandperformanceofthetargetscompanyownedunits(whereapplicable).

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Sometimes,anacquireraffirmativelyseekingtoidentifyacquisitiontargetsinsteadmeetsatargetthatitselfseekstobeacquired.
Suchanacquisitioncandidatemayofferanexcellentopportunityfortheacquirer,althoughthetargetsoperationsandfinancial
conditionshouldbeinspectedcloselyforanyliabilityorpotentialpitfallsthatmaybehiddenbehindthesellersstrategicintentions.

Oncetwocompanieshaveagreedtomoveforward,awidevarietyoflegaldocumentsandrecords,whereapplicable,shouldbe
reviewedandanalyzedcarefullybytheacquiringentityanditslegalcounsel.Duediligencehelpsanswertwoverybasicquestions:
(1)Whyarewedoingthisdeal?and(2)Whatriskswillweassumeifwedecidetoproceed?

Thefollowingisanillustrativelistofsomequestionstheacquireranditslegalandaccountingrepresentativeswilltrytoansweras
theydraftacquisitionagreementstomemorializethedeal:

Whatapprovalswillbeneededtoeffectuatethetransaction(e.g.,directorandstockholderapproval,governmental
consents,lendersandlessorsconsents,etc.)?

Areanyantitrustproblemsraisedbythetransaction?Willfilingbenecessaryunderthepremergernotificationprovisions
oftheHartScottRodinoAct?

Withwhat,ifany,federalorstatesecuritiesregistrationorreportinglawsmusttheclientcomply?

Whatarethepotentialtaxconsequencesofatransactionforbuyer,sellerandtheirrespectivestockholders?

Whatarethebuyerspotentialpostclosingrisksandobligations?Towhatextentshouldthesellerbeheldliableforsuch
potentialliability?Whatsteps,ifany,canbetakentoreducepotentialliabilities?Whatwillitcosttoimplementsuchsteps?

Whatifanyimpedimentsexisttotransferringthetargetcompanyskeytangibleandintangibleassets,includingreal
estate,intellectualorotherproperty?

WhatifanyissuesrelatetosuchenvironmentalandhazardouswastelawsastheComprehensiveEnvironmental
ResponseCompensationandLiabilityAct(theSuperfundlaw),andothers?

Whatarethebuyersandsellersobligationsandresponsibilitiesunderapplicablefederalandstatelaborand
employmentlaws(e.g.,willthebuyerbesubjecttosuccessorliabilityunderfederallaborlawsandasaresultbe
obligatedtorecognizethepresenceoforganizedlaborandnegotiateexistingcollectivebargainingagreements)?

Shouldemployment,consulting,confidentialityornoncompetitionagreementsbecreated,ormodifiedinconnection
withtheproposedtransaction?

Whatarethetermsofthetargetsagreementswithitsexistingfranchisees?Aretheseagreementsassignable?Dothey
containclausesgivingthefranchisordiscretiontochangethesystemorownership?Couldanyofthesetermscause
problemsfortheacquiringfranchisoratalaterdate?

Isthetargetcurrentlyinvolvedinlitigationwithfranchisees,creditors,competitorsorsuppliers?Threatenedlitigation?
Potentiallitigation?Whatrisksofexposuredoestheacquiringfranchisorface?

Havethetargetsregistrationanddisclosuredocumentsbeenproperlyfiledandupdated?

Theacquirersbusinessandaccountingadvisorswillfocusonthefollowingissues:

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Doesthetargetfranchisorfitintotheacquiringfranchisorslongrangegrowthplans?

Whatarethetargetfranchisorsstrongpointsandweaknesses?Howdoestheacquiringfranchisorsmanagementplan
toeliminatethoseweaknesses?

Hastheacquiringfranchisorsmanagementteamdevelopedacomprehensiveplantointegratethetargetsresources?

Whatisthetargetfranchisorsratioofcompanyownedoutletstofranchisees?

Arethetargetsproductsandservicescompetitiveintermsofprice,quality,styleandmarketability?

Doesthetargetfranchisormanufactureitsownproducts?Whatproportionsarepurchasedfromoutsidesellers?

Whatisthetargetspastandcurrentfinancialcondition?Whataboutfutureprojections?Aretheyrealistic?

Whatisthetargetfranchisorssaleshistory?Hastherebeenasteadyflowoffranchisesalesandroyaltypayments?

Whatisthetargetfranchisorsattritionrate?Havetherebeenmanyrecentterminationsortransfers?Haveanyofthese
beencontestedbyfranchiseesaslackinggoodcause?

COMMON MISTAKES MADE BY THE FRANCHISOR BUYER DURING DUE DILLIGENCE

Mismatchbetweensellerprovideddocumentsandskillsofthebuyer'sreviewteam.Thesellermayhaveparticularly
complexfinancialstatementsorhighlytechnicalreportsthatmustbeunderstoodbythebuyer'sduediligenceteam.Ensure
thatthebuyerandsellersadvisorsarecompatible.

Poorcommunicationandmisunderstandings.Communicationsshouldbeopenandclearbetweenbuyerandsellerteams.
Theprocessmustbewellorchestrated.

Lackofplanningandfocusinthepreparationofduediligencequestionnairesandinterviewswiththeseller'steam.The
buyershouldfocusonpreparingquestionsbasedonqualitynotquantity.Sellerswillresentwasteful"fishingexpeditions"
thatmakethebuyer'steamappearunfocused.Thereshouldbeaclearfitbetweenquestionsaskedandthecompelling
strategicrationaleunderlyingthetransaction.

Inadequatetimedevotedtotaxandfinancialmatters.Thebuyer's(andseller's)CFOandCPAmustplayanintegralpartin
theduediligenceprocess,gatheringdataonpastfinancialperformanceandtaxreporting,unusualfinancialeventsor
disturbingtrendsorinefficiencies.

Thebuyermustinsistthatitsteambetreatedlikewelcomeguests,notenemiesfromtheIRS!Buyer'scounseltoooftenis
senttoadarkroominafardistantcornerofthebuildingtoinspectdocumentswithoutcoffee,windowsorphones.Sellers
whoprovidereasonableaccommodationsandsupportforbuyerduediligenceteamwillenhanceandexpeditethe
transaction.

Failuretocloselyexamineintangiblefactorsthatdriveadeal'ssuccess.Alackofsharedvisionorconflictingcorporate
cultureskillmanydeals.Thefranchisor'sduediligencemustincludeaprocessformeasuringthelikelihoodthatthetwo
culturesandsystemswillcomplementeachotherpostclosing.

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THE ROLE OF THE FRANCHISEE IN A PROPOSED MERGER OR ACQUISITION

Unlikeothertypesofgrowingcompaniesinvolvedinmergersandacquisitions,franchisorshaveexistingcontractualvertical
distributionsystemsinplacethroughtheirfranchisees.Franchiseesinterestsshouldbetakenintoaccountwhenthefranchisors
counselanalyzesthelegalconsequencesandpotentialcostsoftheproposedmergeroracquisition.Franchiseesareclearly
"interestedparties"whosecontractualandotherlegalandequitablerightsmustbeconsidered.

Thereisnostatutoryorlegalbasisfordisclosingtheintenttoengageinamergeroracquisition.Noristheretypicallyany
contractualrequirementtoobtainfranchiseeapproval.However,good"franchiseerelations"woulddictatethatfranchiseesshould
beawareofandinvolvedinatransactiontosomedegree.Thelevelofcooperationbetweenthebuyersandthesellersfranchisee
networkscangreatlyfacilitatethetransactionorquiteliterallykillthedeal,dependingonhowsuchcommunicationchallengesarehandled.

Clearly,thefranchiseewillhavesomelegitimatequestionsandconcernswhenheorshefirstlearnsoftheproposedtransaction.
Thesavvyfranchisorwillanticipatetheseconcernsandintegratetheproposedsolutionsintoanacquisitionplanand
communicationswiththefranchiseesand/orthefranchiseeassociation.Suchconcernsinclude:

1. Whataretheacquiringfranchisorsplansfortheacquiredsystem?Consolidationandconversion?Atwhosecost?
Liquidation?Growth?

2. Whatistheacquiringfranchisorsreputationandmanagementphilosophy?Whatareitsattitudestowardfieldsupport
andongoingtraining?

3. Willtheacquiringfranchisorbesensitivetotherightsandconcernsofthefranchisees?Orwillthefranchiseesadopta,
``wedratherfightthanswitchmentalitytowardthenewbuyerinanticipationofhostilenegotiations?

4. Howstrongistheacquiringfranchisorsfinancialposition?Willtheacquiringfranchisoropenupnewopportunitiesfor
franchisees,possiblyincludingaccesstonewproductlines,financingprogramsforgrowthandexpansion,produce
purchasing,andcooperativeadvertisingprograms?

5. Ifthetargetfranchisorownspropertythatitleasestofranchisees,willthetermsandconditionsofthecurrentleasesbe
honoredbytheacquiringfranchisor?Whataboutothercontractualobligations?Willanyspecialrelationshipswith
thirdpartyvendorsbeaffectedordamagedbythetransaction?

ABOUT THE AUTHORS

Andrew ShermanisaPartnerintheWashington,DCofficeofJonesDay,withmorethan2,500attorneysworldwide.
Mr.Shermanisarecognizedinternationalauthorityonthelegalandstrategicissuesaffectingsmallandgrowingcompanies.Mr.

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ShermanisanAdjunctProfessorintheMastersofBusinessAdministration(MBA)programattheUniversityofMarylandand
GeorgetownUniversitywherehehastaughtcoursesonbusinessgrowth,capitalformationandentrepreneurshipformorethan23
years.Mr.Shermanistheauthorof19booksonthelegalandstrategicaspectsofbusinessgrowthandcapitalformation.

Burt Yarkin,ManagingDirectorofTheMcLeanGroup'sSanFrancisco,CAoffice,hasmorethan25years'experienceinthe
franchisingbusinessandahistoryofgrowingstrongbusinesses.Mr.Yarkinhasheldseniormanagementpositionswithsuchwellknown
internationalbrandsasCartridgeWorld,Gymboreeand1800Flowersandspearheadedeffortstogrowthosebrandsglobally.Heisa
popularspeakeratfranchise,printingandimaging,andotherbusinessconferencesandhasbeenfeaturedinarticlesinTheWallStreet
Journal,BusinessWeek,TheNewYorkTimesandEntrepreneurMagazine,aswellasothernewspapers,magazinesandnewsprograms.

Jones Day
JonesDay,alegalinstitutionwithmorethan2,500lawyersonfourcontinents,isbasedonasetofcoreprinciplesthemostcritical
ofwhichisarelentlessfocusonclientservicethattranscendsindividualinterests.WeareOneFirmWorldwide.Ourcommitmentto
clientservicehasrepeatedlyearnedtheFirmfirstplaceratingsfromTheBTIConsultingGroup,anorganizationthatmonitorsclient
satisfactionwithlegalservices.Theannualrankingisbasedonindependent,individualinterviewswithmorethan300Fortune1000
generalcounsel.

SincetheinceptionoftheBTIClientServicerankingtenyearsago,JonesDayhasrankednumberonesixtimes.Ourconsistenthigh
performancehasearnedtheFirmaplaceamongtheelitefirmselectedtotheBTIClientServiceHallofFame.Inkeyclientservice
criteria,theFirmwasrecognizedasamongtheBestoftheBest(Tier1)inClientFocus,UnderstandingtheClientsBusiness,
KeepingClientsInformed,andMeetingScope&Budget,amongseveralothercategories.

The McLean Group
TheMcLeanGroupisaninvestmentbankprovidingmergersandacquisitions(M&A),capitalformation,marketintelligence,business
valuation,litigationsupportandexitplanningservicestomiddlemarketbusinesses.HeadquarteredinWashington,DC,weareamong
thelargestindependentmiddlemarketinvestmentbanksinthenation.TheMcLeanGrouphasapresenceinmorethan30citiesinthe
US,servingdomesticandinternationalclientswithabroadresumeofsuccessfullyconsummatedfinancialtransactions.Ourresearchstaff
leveragesstateoftheart,proprietarycorporateinformationandtransactiondata,providingourclientswithunmatchedinformationon
whichtomaketransactiondecisions.TheMcLeanGrouphasanexperiencedteamofseniorinvestmentbankersdedicatedtoavarietyof
marketspecializationsincludingfranchising.OurseasonedprofessionalscombineindepthindustryknowledgewithM&Abestpractices
tohelpmiddlemarketcompaniesachievetheirstrategicobjectives.Weworkcloselywithourclientstodevelopacomprehensivesetof
strategicalternativesandthenevaluateandexecutethemostsuitableapproach.

Ifyouhaveanyquestionsaboutthetopicdiscussedinthiswhitepaperpleasecontact:

BURT YARKIN ANDREW SHERMAN

The McLean Group Jones Day
201SpearStreet,Suite1100 51LouisianaAvenue,NW
SanFrancisco,CA94105 Washington,DC20001
(510)4446195 (202)8793686
byarkin@mcleanllc.com ajsherman@jonesday.com

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