dan rowe (00:03.658)
Hey guys, welcome to Smart Franchising with Fransmart and today my guest is Patrick Gellerher, the managing partner of Boxwood Partners, who I originally met in YPO back when he was involved with Sweet Frog and it seems like every time I open up LinkedIn, I’m seeing another deal you guys have done. So I just, I thought it would be really helpful to have you on our show today so that you can give some insight to franchisees or franchisors about buying rights, selling right and raising capital. So.

Before we start, Patrick, tell us a little bit more about yourself.

J Patrick Galleher (00:35.816)
Great, well thanks Dan, thanks for having me on today. Really appreciate it. And that seems like a long time ago, we met at that lunch with, I think it was Hillary Clinton maybe in DC at that YPO event, seems like ages ago. But well, yeah, Boxwood Partners, we’ve developed a specialty within the franchise sector. We tend to represent a lot of franchisors when they’re looking to raise capital or exit. We’ve recently represented several

especially within home services and resi services. So we’ve started moving into helping large franchisee groups exit when the time is right. But traditionally we’ve focused on franchisors and how to help franchisors build value in their P&Ls, how to maximize value when they look to bring private equity in.

dan rowe (01:31.35)
Good. Now I remember when I met you, when I met you, what I found interesting is one of my first exposures in franchising 30 years ago is with this chain merging chain. We grew at light speed and all over the country within four years, all the tons of buyers, tons of potential buyers, all these people wanted to buy the company and they got a letter of intent to, to sell the company for $50 million all cash. And at that point,

they wasted about a year scrambling around in diligence and trying to find all the stuff that the buyers needed to close. And it shines such a bad light on the company itself. All the other buyers went away. They eventually sold for $30 million, lost $20 million in one year by not being prepared enough to sell. And so I remember when I met you, I’m like, oh my God, like this guy, you know, like I need to learn how to.

how not to let that happen again. But what are some, I mean, like, you know, give us some advice from what, what should, what, like I always say, if you’re ever going to start a company or if you’re getting into franchising, think about the day that you eventually want to sell it. Right. So any advice that, that you have for some potential buyers, I mean, some potential sellers.

J Patrick Galleher (02:46.779)
it.

Yeah, no, that’s a great question. It’s one that we encounter every day, because most of our clients receive multiple offers every month from different potential private equity groups. And that’s an initial discussion that we have with every client of ours is, why shouldn’t I just sell to this one group first running a process? And what you outlined is exactly why we exist, and we help our clients run a process that

bidders and we make sure that we prepare all the information prior to going to market. So we require all of our clients to do a sell site quality of earnings study prior to going to market. We build a data room out before ever talking to a potential buyer. We get everybody on the same timeline. So we typically run a two bid process where we ask for indications of interest. We narrow the field down to the top eight indications.

from there and then we ask for one LOI to go exclusive and we make the buyer slash investor close in 45 to 60 days from there. So we typically have three or four backup LOIs.

It keeps everybody honest throughout the process. And we’ve seen all the good, the bad, and the ugly with our clients prior to ever having a discussion with a potential buyer. So, um, it really, uh, allows the management team to focus on running the company. And, uh, you know, that’s one thing our clients always ask, what can we do to help hitting your numbers, making sure your, uh, system wide sales are increasing, making sure franchisee validation is going strong, you know, all those

J Patrick Galleher (04:31.706)
help us close deals. Let us, you know, we retail our clients, just let us focus on the deal aspect and the financials and as long as the business is moving in the right direction we’re going to get you the deal that you want.

dan rowe (04:44.102)
Yeah, there’s usually a gap between what the seller thinks the business is worth and what the buyer wants to pay or what the buyer decides. Do you recommend and why, like, do you recommend the buyer and seller both be represented by somebody like you?

J Patrick Galleher (04:59.284)
Typically, the buyers are not represented. They’re private equity groups who do this for a living. But I would never spend five, 10, 15 years building a business and then not hire an expert like Boxwood on the exit. And we’ve found that we’ve delivered results well above our clients’ expectations on valuations. So it’s one of those things that we have not

difficult time the last three years. We’ve closed a ton of deals in the fourth quarter. We’ve got, I think, six or seven deals that will close in the first quarter of 2024. All that valuation is well above where our clients expected to achieve. So by running the right process, having the data-driven approach that we have, getting all the information prepared in front

the being able to foreshadow wherever the negatives are within the company, we’re able to really push valuations higher. We get the buyers to fall in love with the asset and then it becomes more of an auction where whether it’s eight, nine, 15 times EBITDA, the buyers have decided they’re going to win the deal no matter what and it gives us a lot of leverage in one, getting the best economic deal.

for our clients and three, getting the best rollover for our clients. And that’s something that a lot of people don’t think about, but we want to bring eight groups to the party for the management meetings and let our clients decide who they want to reinvest 10, 15, 20, 25% of the deal proceeds back in with so they have a second bite of the apple. We’ve had many clients end up getting more money on the next exit two, three, four years

deal. So

dan rowe (07:00.394)
Hey, so explain how the second bite works just because you went over that quick for someone that’s not familiar. Usually they think I’m just going to sell my company. I get the best offer. Boom. Second bite of the apple is what?

J Patrick Galleher (07:12.208)
Yeah, so let’s use a $100 million deal as an example. $100 million deal is gonna be usually typically financed with let’s just use round numbers, $50 million of debt. So the deal is gonna be $100 million. The new cap table.

Day one post the deal is $50 million, not 100 million because they’re using 50 million of debt. So if you roll forward 10 million of the 100 million, you’re going to end up owning 20% of the new co day one after the deal. So for $10 million, you’re able to own 20% of the deal going forward because of the use of debt and leverage on the transactions. So it becomes you take $90 million off the table, you still own 20% of the company.

for 200 million in three, four years, you’re getting another $40 million of proceeds on the next transaction. So we’ve been very successful at helping our clients pick the right private equity group to partner with to help them get that next tranche of enterprise value going forward.

dan rowe (08:20.478)
And it probably makes the buyers feel good knowing that the founders who know the most about the business are going to stay in, right? They’re staying in for the next round too.

J Patrick Galleher (08:30.02)
Absolutely. And the thing that continues to shock me and over the years, we’ve had so many clients go into the process saying, I only want to roll forward 10% or 15%. I want to take my chips off the table. By the time they meet with eight different groups about their business, asking really smart questions, digging into the good and the opportunities that they see in the company. Most of the time I have clients come back and say, no,

30% of my proceeds forward and own more of the company for the next buy of the Apple. So that’s more often than not what we see is clients want to take chips off the table at the beginning, then they have these management meetings. And when we get to the final LOI stage, everyone wants to own more of their business going forward, take a little less chips off the table now, and then I get a bigger second buy of the Apple moving forward. So that happens probably 70, 80% of the time in our deals.

dan rowe (09:00.856)
Hehe.

J Patrick Galleher (09:29.814)
excited about their own companies after they’ve had the management meetings.

dan rowe (09:34.734)
Oh, wow. Hey, so, um, let’s get some advice from you. So what are, what are just three things to look out for when buying a company? If you were buying a company, what are some mistakes people make? What are the questions that they don’t ask? What are sort of, you know, what are some tricks that you see back to that business that we had? I mean, these guys had low franchise integrity development, integrity rates, they had all kinds of issues. Each one of those things was, was a, was a tax.

that the buying agent used to lower the price of this. So I’m just curious, like what are three things if you were buying a company or advising someone buying a company, what are three things that you look out for?

J Patrick Galleher (10:16.212)
What?

The number one thing is franchisee validation and economics. The franchise system just doesn’t work if franchisees aren’t happy and aren’t making money. So, you know, if it’s a brick and mortar, four wall franchise system, you know, got to look at the lease calendar, the waterfall of when leases are running off, look at the profitability of each location that’s going to be running off in the next two, three years,

or the FBR reviews are good and that you’ve done a recent one prior to, prior to buy it. If they haven’t had one done, most of the time on the buy side, highly recommend doing a study, going into it. But everything gets down to unit level economics with the franchisees and no franchise or they can be profitable for a year or two without franchisee satisfaction or profitability. But over five, 10 years,

having the business model work is the king of the hill. I mean, you can’t build a franchise or if franchisees aren’t making money. And then things like making sure the legal documentation, your franchise agreements, your FDDs are all top notch. I’ve seen too many franchisors basically allow changes to their franchise agreements, too many changes.

and addendums versus inside the agreements, which make it very hard on the buy side to evaluate each franchise agreement, making sure that you’re in good grade and making sure that franchise award, why are they selling?

dan rowe (11:51.952)
Mm-hmm. Yeah.

J Patrick Galleher (12:04.836)
And, you know, lastly, looking at, you know, the P&Ls of the franchise or you’re buying, you know, we really discount down new franchise fees versus royalties. So, you know, when we’re representing somebody on the sell side, you know, it’s all about the royalty rebates, the fees that you’re charging your franchisees. No one cares about one time, new franchise fees.

So.

dan rowe (12:34.186)
Yeah, the upfront franchise fee. You think about it like a franchise fee might be $40,000, but the royalty and rebates is 60, 80,000 a year every year for 10 or 20 years. So yeah, the, uh, you know, I, it’s all for me, it’s all about unit economics. It’s unit economics. And then if the franchise or who knows more than anybody, if the franchise or is not continually building and that I think sends a message, but the bigger one is if franchisees.

J Patrick Galleher (12:46.118)
Yep, yep.

dan rowe (13:03.786)
If franchisees aren’t building, if you don’t talk to people that are happy and referenceable and building more stores, um, you gotta run for the Hills. You know, you gotta run for the Hills.

J Patrick Galleher (13:12.68)
Yeah, we often look at the percentage of Zs that are opening or have more than one location or one territory or, you know, that’s a tell sign on how happy they are. You know, one is validation and two is, you know, how many Zs in the system have more than one, you know, territory or location.

dan rowe (13:33.398)
Yeah. Hey, back on the idea of selling the example you used earlier, if somebody’s going to sell their company and they’re going to get half debt, is that, is that debt guaranteed in any way or who guarantees that debt?

J Patrick Galleher (13:48.008)
The company does, not the seller. So the assets, the company guarantees the debt. So I’ve never seen a situation where the private equity firm and the seller are guaranteeing the debt.

dan rowe (13:50.506)
So the asset.

dan rowe (14:00.938)
Okay. Got it. How about put, put yourself in a, in a seller’s position. Like if you were advising someone, a franchisee or a franchise or who is thinking, you know, I think I want to build this thing and sell it in three or four years, what are kind of three things that they should do to make sure their house is in order when someone knocks on that door saying, Hey, Patrick, I’m interested buying your company that, that decision is quick that the, and I mean, there’s

really no snags to getting a deal done quick. Like any recommendations?

J Patrick Galleher (14:31.484)
Well, one is I would never recommend doing a deal quick. And I would never answer the door to one knock.

dan rowe (14:38.286)
To what?

J Patrick Galleher (14:38.364)
The key to one knock, I would never answer the door to one knock. It’s very rare that one knock produces an optimal result. The only thing you will know is that you didn’t, you know, it’s kind of like having an art auction. You don’t invite one person to an art auction to bid against themselves. To make sure that you keep everyone honest and they know they’re bidding against other, I’ve never seen a buyer pay max value if they know

dan rowe (14:43.302)
Ha ha ha.

dan rowe (14:57.23)
Smart.

J Patrick Galleher (15:08.438)
else is at the at the in the process.

dan rowe (15:13.667)
That’s smart. How do you go about creating that environment without looking like you’re trying to sell?

J Patrick Galleher (15:21.2)
Well, I mean, I don’t think there’s any negatives of trying to sell. I mean, the next, you know, the next level of, you know, once you hit a hundred, 150 million of system wide sales.

You should have private equity involved in your business. There’s no reason for you to have all that risk on yourself. There’s no reason not to have leverage. There’s no reason not to bring in a board and private equity to help you take it to the next level. And there’s no reason not to de-risk. And if you’re gonna do that, you should do it right. Get all your ducks in a row, get all the data pulled together, hire someone like Boxwood to go out and run a process. We typically go out to about 200 to 250

investors slash groups on every deal and we narrow it down we usually get about 30 indications of interest out of that pool and then we narrow it down to the top eight to do actual management meetings so you really want to start with that big funnel another thing I always say is I’ve never been successful at predicting who’s gonna buy one of our deals it’s never if I had to list out the top five buyers for every deal that we’re engaged on I would guarantee I’d

someone out of left field who comes and pays the highest price and gives the best terms who really wants to own our Client and that’s not

dan rowe (16:41.479)
And are these buyers usually in your database?

J Patrick Galleher (16:44.776)
Yeah, I mean, everybody is. Our databases are fairly extensive. I mean, there’s over 4,000 private equity groups and we narrow it down to a couple hundred to go out to on every deal. And it’s not just private equity groups, but we’re still seeing private equity groups outbid strategic buyers on most of our deals.

dan rowe (16:56.45)
Who’s doing the deals, yeah.

J Patrick Galleher (17:08.872)
private equity. I think there’s $3.1 trillion of callable capital right now for deals.

They’ve got to put money to work. They’ve got great relationships with all the lenders that are still lending out there. And that’s one thing that just to touch on, the average owner does not realize that most deals are not financed by bank debt or commercial debt. These are all private credit funds financing these deals and doing kind of three and a half to six and a half times leverage on each deal. So and the private equity groups have their favorite private credit funds that will pay

dan rowe (17:17.969)
Yeah.

dan rowe (17:40.218)
Yeah.

J Patrick Galleher (17:44.918)
come in and partner with them, that provides the leverage that allows that second bite of the apple to be as good as it is.

dan rowe (17:52.322)
Good. Run us through your process again. So I’m a, I’m a guy. I’ve got 40 franchises. I’m a franchisee and, and I’m thinking about selling and I approach a guy like you. What, how does it go timelines and steps?

J Patrick Galleher (18:04.308)
Yeah, so once we have that discussion, we’ll get some initial information from the potential client. We’ll come up with some thoughts on what we think a fair valuation for the businesses. We’ll provide a potential engagement letter. Typically our fees are somewhere around one to 2% of whatever that fair deal is, and then we get 6% over that fair deal.

So it gives our team incentive to go out there and kick ass and get a above market deal for our clients. We then we introduce probably two or three third party accounting firms to our client to get a sell side quality of earnings study done.

And what a quality of earning a lot of franchisors come to us or franchisees, you know, say, well, you know, we, we do our taxes. We’re reviewed. We have an audit. Uh, why do I need a quality of earnings? Quality of earnings is going to look at a lot of one-time expenses, one-time revenue gains, one-time revenue misses. And it’s going to help us rebuild the P and L to be like an ongoing business from there. So, um, the reason sell-side quality of earnings have become standard is because five years ago, 10 years ago.

Only the buy side was doing quality of earnings. And every time a private equity firm did one, they found the company to be a lot more profitable than what the banker thought it was. And so no private equity group would sell an asset or a portfolio company now without doing a sell-side quality of earnings, even though they’re doing monthly board reports and quarterly board reports. So the sell-side quality of earnings, depending on the size and complexity of the company, typically costs about 50 to $100,000.

dan rowe (19:30.211)
Hmm.

J Patrick Galleher (19:47.6)
But in every deal we do, it adds a ton of value and allows us to go out to market knowing what the buyer is going to see when they do the quality of earnings. And so we can foreshadow, preempt, and make sure that any negatives that are going to be found, we put out there in the market before people do their first bids and second bids. That way they can’t retrade or find anything after they provide an LOI to come back at

dan rowe (19:47.988)
Okay.

J Patrick Galleher (20:17.594)
as the company’s performing on budget at that point, there’s no excuse for a retrade. We see very few retreads in any of our deals, like the one you mentioned earlier. So we do that. That usually takes about two to three weeks. Once we’re engaged, it’s about four to six weeks for us to get to market.

And then we hit the market, we make phone calls, we call that 250 group target list, we send them a teaser, usually a two page teaser and a confidentiality agreement. And then once they usually about 100 to 150 firms will execute the NDA, we’ll send them the confidential information memorandum after that. So, which is usually about a 50 to 70 page PowerPoint deck with more details on the company,

And then from there, everybody has about three to four weeks to ask us questions. And at this point, we’ve still kept the management team focused on the business. The management teams have very little involvement up to this point in the process, other than answering some questions for the Q of E and reviewing the SIEM and the teasers that we’ve put together. Then we asked for initial indications of interest. And

Then we put together a summary of those IOIs. We go back to our clients and say, these are our recommended management meetings, usually eight. Sometimes clients have said, oh, I wanna meet with 12, 13. We schedule all those meetings, have those meetings. Our clients get to interview.

the potential buyers as much as the buyers have any management presentation done. And then usually two to three weeks after that, we ask for a final LOI from each party. And so out of the eight management meetings, we usually target to get three to four LOIs from there. We choose the final one. And remember, at each the IOI stage, if we got 30 IOIs and we’re only doing eight meetings, I’ve been able to call back all 30 of those and say,

J Patrick Galleher (22:19.862)
seeing about this business that everybody else is seeing, but you’re not going to get one of the eight meeting slots. So unless you’re going to raise your bid, change the structure, give management a little bit more options going forward or something.

you’re not even going to get to the next stage of the process. So that’s the first phase where we can really add a lot of value and push the deal price higher. Then after management meetings, hopefully two, three, four parties fall in love with the management team and the deal. And when they do the LOI, only one’s going to win. So we call back everyone and say, hey, you didn’t win. You missed the mark. Where can you improve your offer?

J Patrick Galleher (23:03.75)
that we can really push valuation higher and make sure the terms are higher. And then in a lot of cases, our clients really like the second or third highest bidder.

So we’ve got tons of backup at that stage. So we call everyone back and say, hey, our clients loved you, but somebody else bid a little higher, or they had slightly better terms. If the deal falls apart, we’ll call you back, because our client really loved to do a deal with you guys, too. And at that point, usually those bidders who got left off call back and say, hey, we can change, we can move. And so it’s kind of an iterative process from there. And then we sign exclusivity and try to close in about 45, 60 days.

dan rowe (23:38.231)
Yeah.

J Patrick Galleher (23:43.746)
It depends, sometimes the length is a little longer. If it’s over 100 million plus, we have to file HSR approval and that adds about 32 days to the process depending on whether we file that LOI or file when all the final due diligence is done.

dan rowe (23:59.662)
So a couple of things you said, you said sometimes the buyers won’t take the highest bid, that probably has to do with your second bite at the Apple, right? They’re electing maybe the second highest bid because they feel better about or more sure about that next bite and in the aggregate deal.

J Patrick Galleher (24:05.919)
Selling.

J Patrick Galleher (24:09.648)
Yeah, yeah.

J Patrick Galleher (24:16.54)
Yep, absolutely. And we have all the performance data on each private equity group. So.

We help our clients kind of evaluate which private equity group might help them add more value. And some definitely are more just money and some are definitely more added value. You know, we give all of our clients kind of a guide on which questions to ask during management meetings, you know, about operating cadence, board meetings, you know, what’s happened in the worst deals they’ve done in the past, how they’ve managed that with management teams and past, you know, past founders.

dan rowe (24:28.054)
Mm-hmm.

J Patrick Galleher (24:52.35)
group is definitely not created equal.

dan rowe (24:54.43)
Yeah. Well, and, and on that, I like, I like your revenue model, your cost model to a seller where you’re, you and the seller agree on basically what the company’s probably going to sell for and you get a piece of that, but you get even more of anything above that. And so if you, if you out deliver, if you deliver, you know, it doesn’t take long before your entire fee has been paid out of the, uh, additional amount that you’ve gotten, which is kind of the best thing in the world.

J Patrick Galleher (25:20.068)
Oh, I can’t think of a, I mean, it’s, if, you know, we give our whole reference list to every prospective client of ours. You know, that’s part of the reason Boxwood has grown as well as it has. We’ve outperformed.

vast majority of the time by 10, 20, $50 million on a lot of deals where we’ve even surpassed where we expected the deal to get to.

dan rowe (25:50.378)
Yeah.

dan rowe (25:54.926)
Wow. Well, I mean, reputation’s everything, right? So the reputation’s everything. So that’s, you guys have been doing this a while. If you didn’t keep outperforming, you wouldn’t keep getting up to bat on all these deals. Hey, let’s go back on me. Just it’s fresh in my mind right now, but like, what are some more advice for franchise or what are the things that you guys are doing that hurt your ability to sell later down the road? Couple just that come to my mind is, uh, if you have low,

development schedule integrity rates, right? You list all these press releases about I sold 20, 50, a hundred million deals and then they don’t actually build or they don’t build like they’re supposed to or unreferenceable franchisees like my God, like these franchisees prepay you to come in this system. They pay you to stay every week or month electronically with the royalties. They put up all the capital to build. All you got to do is not bug them. Right.

Yet so many franchisors get that wrong, but like, what are some things that, that you see that just erode a person’s ability to sell their business?

J Patrick Galleher (27:00.4)
Yeah, I mean exactly that. I mean, selling too quick, selling miss sized territories, miss sized location radiuses. There’s definitely a lot of systems that we review. And I mean, we probably review, I would say 10 to 15 franchise or before we take one on. We’re very picky on which clients we engage with to run a sell side for. So we take a look at all those things you just mentioned Dan,

of our due diligence process before we propose an engagement letter or evaluation for where we think the business is going to come in. Buyers are really smart nowadays and they all have Buxton and software. They’re looking at all the location data. They’re looking at the white space available across the country, where they’re going to be able to expand the system.

J Patrick Galleher (27:55.976)
A lot of founders are not as smart as the private equity community is on how to value and how to build their system to be valuable.

dan rowe (28:05.354)
Yeah, I think a lot of times it’s good to say no, right? Say no to the wrong franchisee, because the wrong franchisee is gonna do the wrong things. They’re gonna pick the wrong sites, hire the wrong people, hold the wrong standards, but you’ve gotta have the good franchisees. And then I even almost like to give longer in the development schedule. Like don’t make somebody open at this onerous rate where they’re likely to miss it and make some mistakes. Like give them enough time to…

to find the right location and build the team and then eventually they will grow. Because all the money is in multi-unit franchisees. Someone that, you know, would you rather have a hundred one-unit franchisees or 10, 10-unit franchisees? The math is completely, completely different, as are the headaches.

J Patrick Galleher (28:47.472)
And every system has a different viewpoint on how big they want their multi-unit guys versus how small they want them and how concentrated. So every system has a different approach to that.

dan rowe (28:54.646)
Patrick froze.

dan rowe (29:03.99)
Hey Patrick, you froze. Could you say it again?

J Patrick Galleher (29:06.492)
Yeah, I think every system has a different viewpoint on how big they want their multi-unit.

franchisees to get and be. So, you know, part of the franchisee groups that we’re representing at the moment, we go back to the franchise or get a memo of understanding with them on how much expansion they’re going to allow that franchisee group to do and where they’re going to allow them to expand. So the private equity investors coming in have an agreement right up front with the

J Patrick Galleher (29:42.202)
expand before the franchisor cuts them off. And we see that more on the Resi services and on the non-QSR side of the franchisor community.

dan rowe (29:46.416)
Okay.

dan rowe (29:52.578)
Yeah. Hey, let’s talk about this time. So January, 2024, you know, I’m hearing stories about all the markets dried up. It’s hard to get money. Interest rates are high. It’s killing everything. And it’s just simply not true. Like in the last couple of weeks, I mean, a ASEI concept, Oakberry got $67 million. And even a startup, I just Googled today’s, if you Google, if you Google a franchise or M&A,

whole bunch of things popped up, but I saw an air, airbrush tanning brand called pure glow raised a million for seed funding in the time when people are, you know, complaining that it’s hard to raise money. I don’t, I’ve never found it hard to raise money in 30 years.

J Patrick Galleher (30:38.192)
As long as you got the right targets and you got the right brand and the right story, we have not seen a slowdown on our deals. I mean, 2023 was a record year for us, 2022 was a record year. And I’d be shocked if 2024 wasn’t a record year. So we continue to see a lot of private equity interests within the franchise community.

me a lot of private equity groups there. I’ve already had four or five reach out trying to grab lunch or dinner while I’m out there. It continues to be an industry in a sector that private equity wants to play in.

dan rowe (31:19.867)
Yeah.

All right. Well, to summarize, if you’re selling, run your company like you want to sell it, make it, you know, have a clean company, have good numbers, referenceable franchisees, reach out to a banker fast and early in the process. It’s not a bad idea to have a relationship with someone like you years before you’re really ready to sell, right?

J Patrick Galleher (31:40.904)
year.

Yeah, we softly help out. I mean, I probably have 20 or 30 franchisors who call me at least once a month and just ask, hey, we’re thinking about this. What do you think? Even if they’re not ready, ready to selling. And that’s one thing that I would caution is I’ve had a lot of franchisors accept offers too early and leave 40, 50, $60 million on the table. Because often I come back and I’ll say, hey, you’re not ready. We can maximize value.

to 12 months and then they go ahead and accept an offer and they might sell their business for $30 million where if they waited 9, 12 months they could have got 60 or 70 million.

I don’t think a lot of owner, operators, founders realize the timing is critical when you go to sell. I mean, you have to have the maturity curves on your new units to a point that we can pro former them out and get you paid on sold but not yet open locations and really drive the value higher. So I’ve seen that too many times over the last 24 months where an aggressive private equity group is able to convince a founder to sell.

now versus wait nine months and they really have left the material amount of money on the table.

dan rowe (33:01.058)
What’s the acronym for sold, but not open because that’s probably the, the big thing, right? That’s your, you’re selling on your mall, you’re selling on your cash or your cashflow, but you’re really going to get a better multiple depending on the integrity rate of what’s coming, right?

J Patrick Galleher (33:15.74)
Yep, absolutely. And we’ve had many deals where we’ve gotten our clients paid on, on sold but not yet open locations.

potential rebate programs that weren’t in place that we put in place during the process. I mean, it’s amazing how many franchisors out there do not have well thought through rebate programs. And just with a little bit of creativity and a few phone calls, you’re able to add another two, three million dollars at the bottom line at 15 times EBITDA, pretty material. So we’ve been able to add a lot of value just by questioning our founders.

dan rowe (33:50.775)
Yeah.

J Patrick Galleher (33:56.943)
And a lot of the time they’re like, well, you know, we don’t want to add a rebate. We don’t want to make our franchisees less profitable. They don’t realize if you go back to that vendor and say, hey, you know, I want the pricing to stay the same, but you know, give me back 5%. There’s room. There’s always room. And it continues to shock our clients at how easy it is to get more rebates, you know, into the P&L.

dan rowe (34:09.014)
There’s room. There’s room. Yeah.

dan rowe (34:20.022)
Is there a rule of thumb? Like if someone charges, let’s just say for, for numbers, if someone’s charging is 6% royalty, are they likely to get 0.6 in rebates or could it be two points in rebates like

J Patrick Galleher (34:34.388)
I wish I could answer that. It’s so variable based on the industry and how many, you know, how much supplies are going into that franchise. I mean, you know, obviously QSR is different than, you know, fast casual versus residential services versus we, we sold a drug testing franchise or last year. And, you know, there’s, there’s a lot of areas that you can get rebates where, you know, no one had ever thought about, you know, asking for rebates.

dan rowe (35:00.67)
Yeah, no, we’ve, I mainly see food concepts and the rebates are, are another point, sometimes two points. And, and what people don’t realize is that’s not two points. That’s 30% more revenue. That’s free cash 30% because almost all of it hits the bottom line.

J Patrick Galleher (35:18.868)
It’s 100% EBITDA, it’s amazing. At Sweet Frog, we had a very robust rebate program on cups and spoons and yogurt. And it’s amazing how much additional EBITDA that added to the bottom line.

dan rowe (35:33.226)
It’s worth noting that the subject of rebates is the only thing that got you to smile on this interview.

J Patrick Galleher (35:38.5)
I love rebates. No, it’s great. It’s almost free money for franchisors, and they really need to make sure that they’ve kind of thought about every potential vendor that could provide a rebate and make sure their FDDs, when they first put them together. This is something, at a few of the legal firms, have conferences I always speak to, is when you first set up your FDD and your franchise agreements to really think through all the possible rebates that you could get in the future,

dan rowe (35:40.088)
Alright.

J Patrick Galleher (36:08.574)
develop that in your in your FTDs. Absolutely and pure profit. Awesome!

dan rowe (36:11.698)
Yeah. Otherwise you’re leaving money on the table. So cool. Patrick, thank you. Thank you so much. So I really appreciate this. And what I’d like to do is, you know, the idea of come check in with you once a year and let’s keep talking about the topics because things change and economy changes and capital changes. And, and we’ll, we’ll get into some more examples of your deals next time we talk.

J Patrick Galleher (36:32.24)
Sounds great, Dan. Really appreciate it. Thanks.

dan rowe (36:34.274)
Thanks so much. Thanks. All right.