Over the past few years, the private equity market has expanded into industries once considered too risky—or too boring—to matter. Sports teams, accounting firms, media rights, and even data centers have all seen significant PE interest. Another sector that has quickly moved to the top of the list: franchising.
Why franchising? Simply put, franchise companies offer two things private equity investors love—recurring revenue and a capital-light model. At its core, franchising is built on the idea of expanding a brand with other people’s money, while collecting royalties along the way. That structure naturally reduces risk, and over the last decade, private equity has taken notice.
This has been highlighted by multiple investments:
- Blackstone Group purchased Jersey Mike’s Subs for $8 Billion
- Roark Capital purchased Dave’s Hot Chick for $1 Billion
- Olympus Partners acquired Excel Fitness LLC, a large Planet Fitness franchisee operating over 90 locations and serving approximately 750,000 members, in a deal valued at $675 million
While these headline-grabbing deals involve some of the biggest names in the industry, similar trends are playing out on a smaller scale. I’ve worked as a Franchise CFO with emerging franchisors who have secured backing from family offices and high-net-worth individuals eager to ride the growth wave.
In the past two years, I’ve had numerous conversations with franchisors looking to position themselves for private equity investment in franchising. What stands out is how often these discussions reveal a knowledge gap—many founders aren’t sure what private equity really is, what firms look for, or how to structure their business to attract capital.
That’s what this article will cover: what private equity is, the key characteristics investors value in a franchise, and the process of preparing to raise PE capital. Because make no mistake—very few of these deals happen by accident. Most are the result of a deliberate, well-executed plan to attract the right kind of investment.
What is Private Equity
Private equity may sound complicated, but at its core, it’s really just investors putting money into private businesses to help them grow. Unlike buying stock in a public company such as Apple or Coca-Cola, private equity firms invest in companies that are not listed on the stock exchange.
The idea behind private equity is that it offers potentially more growth (and risk) then investing in public markets. As such, it offers a unique form of investment to typically wealth individuals, corporations, and other funds, that is looking for larger returns.
A Brief History
Private equity has been around for decades. In the 1980s, it became well known for “leveraged buyouts,” when firms would purchase entire companies using a mix of borrowed money and investor cash. Over time, the industry matured. Instead of just buying struggling companies to cut costs, today’s private equity firms also focus on growth, expanding brands, modernizing systems, and helping businesses scale faster.
Some of the biggest companies grew with the help of private equity investment. Before Facebook went public, private equity firms provided critical growth capital that helped it scale its platform and build out its advertising model. Uber benefited from major private equity backing during its rapid expansion phase, which allowed it to enter new markets and develop its technology before turning a profit. These examples show how private equity isn’t just about buying and selling companies — it can also be a powerful growth engine for businesses.
How Private Equity Works (Simple Version)
Here’s how it works:
- Raising Funds – Private equity firms collect money from investors (such as pension funds, insurance companies, and wealthy individuals).
- Buying Companies – They use that pool of money to buy part of, or all of, a business.
- Improving the Business – The goal is to grow sales, improve profits, or expand into new markets. Essentially, the aim is to improve the value of the company they have invested in.
- Selling at a Profit – After a few years, the firm sells the business (or its share) for more than it paid, giving investors back their money plus a return.
While private equity can seem complicated (and sometimes the deal structure can be), the basics are like any other investment: Buy low, invest in growth, and sell high.
Why This Matters for Franchising
Recently, private equity investment in franchising has surged because franchises are especially attractive. Franchising offers recurring revenue streams (royalties) and a capital-light structure that allows brands to grow quickly. For many emerging brands, having a Franchise CFO who understands both the financial side and what private equity firms look for can make the difference between staying small and scaling into a national name.
The Diamond in the Rough – Franchising
Let’s discuss a little more in detail why franchising can be such an attractive business.
First, there is the recurring revenue nature of the business model: royalties. Recurring revenue is one of the most valuable pieces of any business. Private equity loves recurring revenue because it provides predictable, steady cash flow that makes future performance easier to forecast. This stability reduces risk, increases valuation, and makes franchising one of the most appealing industries for private equity investment.
Next, franchise growth often comes from expanding the brand into new markets. This usually means opening more locations across a wider geographic area — something many businesses pursue. The difference in franchising is where the capital comes from. Unlike traditional companies that fund growth with their own money, franchisors rely on their franchisees’ capital to open new units. This model allows the brand to scale rapidly while limiting the franchisor’s financial risk and still generating steady returns through royalties and fees.
Brands like Subway and Jersey Mike’s are prime examples of the powerful growth the franchise model can have. Both have grown to thousands of locations nationwide, not because their corporate offices poured in massive amounts of money to build each store, but because franchisees invested their own capital to carry the brand into new markets. The result is rapid, widespread expansion that would be nearly impossible to achieve using only the franchisor’s balance sheet.
Lastly, private equity values the systematic nature of franchising. At the core of every strong franchise is a repeatable system — a proven way of running the business that can be applied consistently across all locations. These systems can be fine-tuned at the unit level to boost sales, lower costs, and improve efficiency. For private equity, that repeatability is gold. If they invest in making the system stronger, those improvements can be rolled out across the entire network, creating massive results with relatively simple changes.
What Makes A Franchise Attractive to Private Equity
While no two private equity firms have the exact same checklist, most look for a handful of common traits that signal growth potential, financial health, and long-term scalability. Let’s walk through the main factors.
Strong Growth Trajectory
Private equity investment in franchising almost always focuses on growth. Firms are looking for brands that have momentum — either in unit expansion, sales, or ideally both. A young franchise with ten locations but strong same-store sales growth might be just as appealing as an older brand with 300 units if the trajectory is steep and the business model can scale.
I often tell brands that the best support they can provide their franchisees with is more growth. The brands that have shown they can expand quickly have succeeded more than those that have shown they have excellent franchisee support. This is echoed in the private equity world.
Take Dave’s Hot Chicken as an example. Founded in 2017 as a single pop-up in Los Angeles, it expanded rapidly to more than 280 units in just a few years. That growth curve caught the attention of Roark Capital, which acquired the brand in a $1 billion deal. The lesson: private equity wants to back brands with the potential to explode in size.
System Size and Market Presence
While private equity does back emerging franchisors, there’s usually a minimum threshold. Many investors want to see at least 50–100 operating units before they seriously consider writing a large check. This size shows that the model is proven, demand exists in multiple markets, and the brand has moved past its experimental stage.
Blackstone’s $8 billion acquisition of Jersey Mike’s Subs wasn’t about proving whether the sandwich shop concept worked — with nearly 3,000 locations, it was clear the brand had nationwide appeal. What Blackstone bought was a scalable machine with room for international growth.
There is a qualifier to this metric. While private equity likes to see brands with at least 50 units, other types of investors will jump on board early. Family offices or individual investors are known to jump into brands with ten or fewer units (I have a client with no units and significant backing from a wealthy investor).
EBITDA and Financial Performance
One of the most important benchmarks private equity looks at is EBITDA (earnings before interest, taxes, depreciation, and amortization). At the franchisor level, many PE firms want to see at least $3–5 million in EBITDA before they consider a brand a serious platform investment. EBITDA matters because it shows both profitability and efficiency, which directly drive valuation. In simple terms, the higher and more consistent the EBITDA, the more valuable the franchise system becomes.
That said, system-wide EBITDA is often just as important — and harder to measure. Private equity firms want to understand how much profit the brand is generating across the entire network of franchisees, not just at the corporate level. If franchisees are earning healthy returns, it signals that the system is attractive to new investors and has room to grow. This is why unit-level economics are so critical.
For example, a franchisor may not yet show $3 million in corporate EBITDA, but if its franchisees are consistently earning strong margins and recouping their investments quickly, PE may look past the franchisor’s current financials. Strong franchisee performance tells investors that the model works and that more entrepreneurs will be eager to buy in, fueling long-term expansion.
As a Franchise CFO, this is usually the point in the conversation with franchisors where reality sets in. Private equity is not writing checks for every brand — they are looking for size, results, and a clear path to profitability. After all, these firms are experts at investing capital where they see the greatest return. The truth is that most franchisors will never secure private equity investment. To even be in the running, a franchise system must demonstrate growth that translates into strong EBITDA at either the franchisor or franchisee level. Without that foundation, attracting serious private equity interest is nearly impossible.
Recurring and Predictable Revenue
As discussed earlier, recurring royalty revenue is one of franchising’s greatest strengths. Private equity firms love the predictability of monthly royalties, which provide steady cash flow even during economic downturns. That stability helps justify high purchase prices.
For example, Planet Fitness has become a private equity favorite in part because of its subscription-like membership model. Even during downturns, members often keep paying small monthly fees, providing stability for both franchisees and the franchisor.
A Defensible, Repeatable System
Private equity wants assurance that a franchise isn’t just a fad. They look for systems and processes that are consistent and repeatable. The playbook for opening, running, and scaling a franchise unit should be clear and proven. That way, improvements made at the corporate level — whether in marketing, training, or technology — can be rolled out systemwide.
This is one reason Dunkin’ Brands (before being acquired by Inspire Brands, which is backed by Roark Capital) was such an attractive target: its standardized systems ensured that thousands of locations could operate smoothly with minimal variation. Dunkin’ had a highly refined playbook for everything from store layout and product preparation to marketing campaigns and supply chain management.
Whether you walked into a Dunkin’ in Boston or Phoenix, you got the same coffee, the same service speed, and the same experience. That kind of operational consistency is exactly what private equity values — because when improvements are made at the corporate level, such as rolling out mobile ordering or updating menu items, they can be applied across the entire network with predictable results. In Dunkin’s case, its ability to scale technology and promotions systemwide without losing brand identity made it a great example of a franchise ready for private equity investment.
Leadership and Vision
Finally, private equity looks at the people behind the brand. A franchisor with strong leadership, a clear growth vision, and a solid operational team is far more appealing than a founder who is still “figuring it out.” In many cases, PE firms will invest not only in the brand but also in strengthening the leadership team.
There’s a saying in private equity circles that “we don’t just invest in businesses — we invest in teams.” While it may sound a little cliché, it’s absolutely true. If you were putting millions of dollars into a business, you’d want complete confidence in the leaders running it and their ability to execute a growth plan. Private equity firms think the same way: a strong, proven team often matters just as much as the financials.
The Process of Getting Private Equity Interest
Private equity investment rarely happens by chance. In most cases, franchisors who attract serious PE attention have gone through a deliberate, professional process to position themselves for it.
The first step is getting your house in order. This means having clean financials, documented systems, and clear unit-level performance data that demonstrates profitability and growth potential. A Franchise CFO can be instrumental here, helping a brand translate day-to-day operations into the financial story private equity firms want to see.
Next, franchisors often work with advisors, bankers, or consultants to identify and approach the right investors. Private equity firms specialize in certain deal sizes, industries, and stages of growth. Targeting the wrong group wastes time; targeting the right group builds momentum.
Once interest is sparked, the process moves into management presentations and due diligence. This is where the franchisor’s leadership team demonstrates not only past results but also a compelling vision for the future. A strong growth plan, backed by data and supported by a capable team, is often what seals investor confidence.
In short, gaining private equity interest isn’t about waiting for the phone to ring. It’s about preparing your brand, telling the right story, and actively engaging with the firms that align with your goals.
Conclusion
Private equity investment in franchising can be a powerful catalyst for growth, but it doesn’t happen by accident. Firms are looking for franchises with proven systems, strong unit economics, healthy EBITDA, and leadership teams ready to scale. Most brands will never reach the size or profitability needed to attract serious investment, but those that do often follow a deliberate path of preparation and professionalization.
The good news is that franchisors don’t have to navigate this journey alone. With the support of experienced professionals — from advisors and attorneys to an outsourced CFO who can bring financial clarity and discipline — a brand can put itself in the best possible position to be taken seriously by private equity. For those willing to invest in the right systems and people, the payoff can be transformational.
