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Venture capital: in search of quality investments: a marriage between franchising and private equity is a win-win for all parties. (Finance).

Article Excerpt
By some estimates there were $228 billion dollars left idle in venture capital and private equity investment funds by the end of 2002. Many of these firms have been unable to find quality investments even though multiples for the sale of privately held companies have declined in the past few years. The goal of private equity investment firms is to invest in strong management teams, proven systems, and high growth situations where conservative amounts of capital investment are necessary. That describes almost perfectly many franchise systems where the first generation owner has grown the business to a moderate size company, has management and a system in place, and would now like to exit the business or retire. The alternative scenario might be where a large, multiple-unit franchisee with a proven track record of success wants to grow by purchasing company stores from a franchisor who is selling company units. In the next few years we can expect to see more deals between private equity investors and franchise systems.

I have been a firsthand witness to the benefits to a franchise system from such a transaction. Cottman Transmission was founded in 1962 and by the mid-1990s had grown to about...

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