How Asset Managers Invest in Franchises: A Look at 5 Key Models

When investors think about diversifying their portfolios, traditional assets like stocks, bonds, gold, and real estate usually come to mind. However, a less conventional but increasingly attractive asset class has captured the attention of professional investors: franchises.

Franchise brands offer more than just rapid growth potential; they provide a variety of structured investment opportunities. Here, we explore the primary models that asset management companies use to invest in the world of franchising.

1. Private Equity Funds

One of the most common methods for large-scale franchise investment is through private equity (PE) funds. These funds pool significant capital from institutional and private investors to acquire stakes in profitable businesses, including established franchise brands.

Typically, this model involves the full or partial acquisition of a chain’s parent company, followed by strategic investment to scale the brand’s infrastructure regionally or globally.

Leading Examples:

• Roark Capital: The powerhouse behind major brands like Dunkin’, Anytime Fitness, and Baskin-Robbins.

• 3G Capital: A key investor in global giants such as Burger King and Tim Hortons.

• L Catterton: Manages a diverse portfolio of consumer brands and health and fashion franchises.

2. Specialized Franchise Investment Firms

Unlike diversified PE funds, some investment firms focus exclusively on the franchise model. Their entire strategy revolves around building, developing, or acquiring franchise brands.

Their activities often include:

• Acquiring master franchise rights for international brands in new territories.

• Investing in promising businesses to help them develop a franchise system.

• Providing the necessary infrastructure, training, and financial systems for emerging brands.

A modern example is FranShares, which allows accredited and non-accredited individuals to co-invest in a curated portfolio of franchise locations.

3. Indirect Investment via Real Estate Investment Trusts (REITs)

Another sophisticated model involves Franchise-Linked Real Estate Investment Trusts (REITs). Instead of investing in the brand’s operations, these asset managers purchase the commercial properties used by franchise businesses. They then generate stable, long-term income by leasing these properties back to the franchisees.

Well-Known Examples:

• Store Capital

• National Retail Properties

This model is often considered lower-risk because it’s backed by long-term lease agreements with established and reputable brands.

4. Hybrid Models: Operational Ownership + Financial Management

In more advanced structures, asset management firms act as both the franchise owner and the financial operator. In this model, the firm:

• Owns a majority stake in the brand or its regional rights.

• Directly manages or oversees the brand’s day-to-day operations.

• Designs and controls the financial structures, including profitability and revenue sharing.

This hands-on approach is most common with emerging brands looking to accelerate their regional or international expansion.

5. Family Offices and Direct Investment

High-net-worth families and their private firms often invest directly in franchise units through their “Family Offices.” This approach offers a different set of advantages:

• Full Control: Investors have complete say over brand selection and geographic location.

• Predictable Returns: The focus is on generating guaranteed monthly income and a clear return on investment within a defined period.

This model is ideal for wealth preservation, offering low-risk, stable returns.

Frequently Asked Questions (FAQ)

• Is franchise investing only for the wealthy?

  • Not anymore. With the rise of crowdfunding platforms and smaller specialized funds, opportunities are opening up for retail investors to participate.

• What is the difference between direct and fund-based investing?

  • In a direct investment, you own a specific franchise unit. In a fund, your investment is spread across a portfolio of multiple brands or locations, diversifying your risk.

• Do large firms like BlackRock invest in franchises?

  • Yes, but typically indirectly by investing in private equity funds that own franchises or by holding stock in the publicly traded parent companies of large franchise brands.

• Can I invest in franchises through real estate?

  • Absolutely. Many REITs specialize in properties leased to franchise businesses, allowing you to profit from their rental income.