Franchise System Acquisition & Sales

Are you looking to buy an existing Franchise system?


Perhaps you are an existing Franchisor wanting to sell your franchise system?


At Greyson Legal | Franchise Lawyers, we can assist you with the purchase or sale process. 

Purchasing a Franchise System

Part 1 - Due Diligence Phase

Carrying out general due diligence is an important preliminary step when considering purchasing a Franchise system. Questions to ask may include:

  • how long has the franchise system been in operation?

  • is it successful?

  • does the existing Franchisor have a good reputation?

  • how well known is the brand?

  • are there good prospects for growing the franchise system into the future? 

  • is the existing Franchisor on good terms with franchisees, or is their tension?

  • are all Franchisees up to date with their payments and general obligations?

  • are Procedures Manuals as used by Franchisees well prepared and current, or do they require further amendment?

  • are internal operating processes in place and sound? 

  • conducting financial due diligence with your accountant such as:

    • confirming financials of the franchise system you are purchasing;

    • clarifying how revenues are generated, eg. upfront fees, ongoing royalties;

    • what are the operating costs ?;

    • etc 

 And recognising that whatever precautions are taken, it is unlikely all Franchisees will be happy with a major change in the Franchisor.

Purchasing a Franchise System

Part 2 - Legalities

When purchasing a Franchise system, it is important to:​

  • recognise you are buying multiple assets and rights. These assets may be tangible (eg. equipment) and intangible (eg. intellectual property (IP)) rights;

  • determine whether assets are unencumbered?. If not, appropriate releases may be required;

  • assess if all intellectual property rights are up to date and registered (where registration is required);

  • clarify if the Franchisor own the IP (or does a separate entity own the IP)?. It is not uncommon in franchising for intellectual property rights to be held by separate entities;

  • confirm if there are any “corporate” owned sites, or are they all independently owned by Franchisees?;

  • understand there will be various legal documents to be reviewed and/or prepared. The documentation required will depend on:

    • how the existing Franchise system is established;

    • what the parties require;

    • if the Franchise system is being assigned (as opposed to the Buyer buying shares in the Franchisor entity itself).


Assuming as assignment (which is the typical method), the legal documents may include:


  • Confidentiality Agreement;

  • Heads of Agreement (or similar “In Principle” Agreement);

  • Business Sale Agreement;

  • review of existing Franchise Agreements;

  • review of existing Disclosure Document;

  • review of existing Procedure Manual(s);

  • searching trademarks and other IP;

  • assignment documentation, for example, related to the Franchise Agreements and IP; and

  • relevant ancillary documentation;

  • are existing Franchise Agreements enforceable and of sound quality, or are amendments likely to be needed ?;

  • are the existing Franchise Agreements assignable in the event of sale/purchase of the franchise system ?;

  • is the franchise system Code compliant ?;

  • is there any current litigation, or formal complaints with ACCC between the existing Franchisor and Franchisees ?;

  • ensuring release/indemnity from ongoing liability linked to past claims;

  • ensuring appropriate restraints of trade on the Seller;

  • if the Franchisor has existing employees – do those employees transfer with the franchise business ?. If so, an assessment would need to be made of existing awards and Employment Agreements;

  • are there any supply agreements in place between the Franchisor and third parties ? Are they to be assigned along with the franchise business ?;

  • do there need to be any adjustments for franchise fees paid/accrued by Franchisees ?;

  • is there an existing Marketing Fund ? If, so:

    • have funds been expended in compliance with the Code ?;

    • the balance of funds in the bank account would need to be transferred to the Buyer as part of the sale/purchase ?;

  • stamp duty assessed against the purchase price would be payable by you as Buyer.

Purchasing a Franchise System

Part 3 - Other Practicalities

There will be a number of other practical issues to work through, such as:


  • new bank account details linked to you as the new Franchisor will need to be provided to the Franchisees;

  • existing telephone numbers, facsimile numbers, internet addresses, post office boxes and e-mail addresses to be transferred to you as the new Franchisor;

  • Etc

 
 
Young Modern Dancers

Who are our Franchise clients?

Sale of Dance Studio Franchise System

Greyson Legal | Franchise Lawyers assisted a client with sale of their dance studio franchise system, incorporating 11 franchisee outlets and a corporate franchise store.

This entailed:


  • contractual advice

  • preparing special conditions to the Contract of Business Sale

  • transfer of intellectual property rights

  • advice and assistance surrendering a premises lease

  • undertaking various business conveyance steps

  • guiding the client through to completion of the transaction 

Greyson Legal | Franchise Lawyers can help you through the entire franchise system acquisition or sale process.