According to the Franchise Times, Planet Fitness recently signed an agreement to acquire 114 gyms from one of its largest franchisees. The purchase price? A reported $800 million. While this deal is notable for its scope and dollar value, franchisors buy franchised outlets all the time. If you are interested in selling your franchise to your franchisor, here are some important considerations from franchisee lawyer Jeffrey M. Goldstein.
Is Selling to Your Franchisor Your Best Option?
While selling your franchise back to your franchisor is one option, it isn’t your only option. There is also a huge secondary market for operating franchises. Your franchise agreement almost certainly gives you the right to transfer your franchise (subject to the franchisor’s approval), and you may be able to get a better price in an arm’s length deal with an investment group or independent third party.
Something else to keep in mind is that your franchise agreement may give your franchisor a right of first refusal. If you receive a bona fide purchase offer, your franchisor may have the right to match this offer and purchase your franchise instead. While this can present challenges when attempting to find an independent purchaser (since potential buyers may not want to put in the effort knowing the deal could be swept out from under them), finding a prospective purchaser before going to your franchisor could maximize the value you receive for your business.
Negotiating the Terms of the Deal
When negotiating a franchise transfer or repurchase, there are several factors to consider beyond the purchase price. The structure of the deal, potential tax consequences and liability for potential third-party claims are just a few examples. If you enter into repurchase negotiations with your franchisor, you will need to be very careful to ensure that you adequately protect your legal and financial interests. Negotiating a repurchase is not like negotiating a franchise agreement. Franchisees have much more leverage at this stage, and they can—and should—use this leverage to negotiate favorable terms.
Protecting Yourself Post-Closing
A key aspect of your negotiations will involve protecting yourself post-closing. While you may be willing to stay on as a consultant (or in some other role) for a period of time, you do not want to lock yourself into another one-sided relationship. You will also want to make sure that you are not exposed to liability for claims accruing pre-closing (but filed post-closing), and you will want to carefully consider any post-closing non-competition and non-solicitation covenants as well. Again, these are just examples and making informed and strategic decisions requires a thorough review of the deal as a whole.
Request an Appointment with Franchisee Lawyer Jeffrey M. Goldstein
Jeffrey M. Goldstein is a national franchisee lawyer who has more than 30 years of experience in the franchise industry. If you are seeking to sell your franchise, Mr. Goldstein can help. To discuss your goals in a free and confidential consultation, please call 202-293-3947 or get in touch online today.
