Private equity groups have eagerly stalked restaurant franchisors in recent years, snapping up such companies as Dunkin’ Brands, owner of the Dunkin’ Donuts and Baskin Robbins chains, along with Hamburger Hamlet, Applebee’s, Chevy’s, and Worldwide Restaurant Concepts, owners of the Sizzler chain.

These days, however, in their eagerness to put their money to work in the restaurant industry, private equity groups are stalking large franchisees, too, and even other private equity groups with franchised restaurant holdings. Last year, private equity groups bought out large franchisees of IHOP Corp. and the Papa John’s Pizza and Church’s Chicken chains, and in 2005 Sun Capital Partners, Inc., bought Garden Fresh Holdings, Inc., from the private investment firm Centre Partners Management LLC. For that matter, even large franchisees have gone on buying sprees; Heartland Food Corp., for example, which operates about 250 Burger King outlets in half a dozen states, has been out snapping up smaller operators in recent years.

Clearly, successful large franchisees are desirable commodities these days, leading many of the people who run such businesses to wonder what their own operations might fetch in such a hot market. But the value of a successful large franchisee company lies hidden in a web of assets and ownership rights, some attributable to the franchisee, some to the franchisor, and some to other parties altogether, and the key to deriving it is to tease apart that structure of ownership, analyzing each layer as well as the whole. That is not an easy task, since relationships among the parties in a franchise enterprise are so complex as to make the whole sometimes worth more than the sum of the parts, and sometimes worth less.


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