Part One: What to Do if Your Franchisor Wants to Sell the Franchise

In Short

• If your franchisor is selling the business, it could bring changes to support, fees, and the overall direction of the franchise.
• New ownership may introduce risks but can also bring fresh opportunities and improvements.
• Conduct due diligence, research the new owner, and seek legal advice to protect your business.

Tips for Businesses

If your franchisor is selling, stay informed and proactive. Ask questions about the new owner’s plans, review your franchise agreement, and connect with other franchisees. Research the buyer’s background and consider meeting them to understand their vision. Most importantly, seek legal advice to ensure your rights and interests are protected.

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Table of Contents

• Why Is the Franchisor Selling?
• Possible Consequences for Franchisees
• Due Diligence
• Key Takeaways
• Frequently Asked Questions

As a franchisee, the ongoing relationship with your franchisor is crucial to your business’s success. However, at times during your franchise agreement, the franchisor may choose to sell the franchise to a new owner. Understandably, this change can be quite concerning for established franchisees with a solid working relationship with their franchisor. This article series will explore the steps franchisees should take upon discovering that their franchisor plans to sell and how they can best prepare for a transition in franchisor ownership.

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Why Is the Franchisor Selling?

There are various reasons a franchisor might choose to sell the franchise. Understanding why your franchisor is selling their franchise is a crucial first step in determining how you wish to proceed as a franchisee. Some reasons a franchisor may transfer ownership of the franchise network include:

• the franchisor has built a successful network and is ready to reap the dividends by selling the franchise to an interested third party;
• an existing owner of the franchisor wants to run the network themselves and buy out the other owners; or
• the franchisor is in financial difficulty and sells the franchise network to a third party to stay afloat.

Possible Consequences for Franchisees

When they learn that the franchisor is seeking new ownership, franchisees may have potential concerns. These can include: 

• new ownership may provide less support, have a weaker reputation, or struggle to maintain the network’s culture; 
• the new owners might lack experience in your industry or may not fully grasp what contributed to the franchise’s success; 
• they may have interests in competing businesses or manage other franchises, which could hinder the growth of the franchise network or lead to insufficient dedication to your franchise; 
• there could be reduced financial support following the ownership change, impacting the level of assistance received from the franchisor, particularly in marketing and training; 
• the new ownership may implement a significantly different strategic vision for the network’s future, potentially diminishing franchisees’ bargaining power; 
• the dynamics of the franchise relationship and the processes for addressing breaches and other critical terms might be altered by the new owners; 
• franchisees could face additional fees or increased marketing costs for unproven campaigns, which would be borne by them; and 
• any informal or verbal agreements made with the former franchisor may be ignored by the new owners.

However, a change in ownership does not have to be bad news. There may be real benefits to a new franchisor taking over. For example, new ownership can revitalise the franchise by introducing innovative:

• systems;
• processes; and 
• marketing strategies.

Fresh energy can revitalise the business. Established franchise networks often stagnate without inspiration. If your past franchisor was difficult, a new owner may provide a fresh start. This new franchisor might welcome new and unique ideas, creating an opportunity for you to share insights and influence the franchise’s direction forward.

Consequently, the sale of your franchise can be either positive or negative. It depends on the circumstances surrounding the sale and who takes over. Before drawing any conclusions, it is important to conduct your research.

Due Diligence

The consequences of a new franchisor purchasing a franchise depend on the buyer. Thus, a crucial step for any franchisee upon hearing of a potential sale is conducting due diligence on the buyer. Contact your current franchisor for information about prospective buyers and their franchise plans. Next, research the buyer’s past and current ventures to evaluate their success and any issues. This is also a good opportunity to connect with other franchise members to discuss concerns and possible actions. If the buyer is an existing franchisor, consult the franchise disclosure register for more details. The best way to learn about the buyer is to talk to them directly. If possible, organise a meeting with the buyer and other franchise members to address your concerns and discuss the franchise’s future.

Key Takeaways

When a franchisor decides to sell their franchise, it can bring change and uncertainty for franchisees. Potential impacts may include:

• adjustments in the level of support provided to franchisees;
• a new franchisor who may have limited experience in the industry or with franchise operations; or
• the introduction of new systems or fees, potentially affecting costs.

However, a change in ownership can also create fresh opportunities and drive positive growth for the franchise. When you learn of a potential sale, you should consult a franchise lawyer to understand the implications and prepare for any future transitions.

Our franchise lawyers at LegalVision are ready to assist you at any stage of the franchise relationship. You will have unlimited access to lawyers to answer your questions and draft and review your documents for a low monthly fee. Call us today on 1300 544 755 or visit our membership page. 

Frequently Asked Questions

What happens when a franchisor sells their franchise?

When a franchisor sells their franchise, franchise system ownership is transferred to a new party. Depending on the new owner’s plans, this can lead to changes in operations, support, fees, or strategic direction.

Could a new franchisor benefit franchisees?

Yes, new ownership can bring fresh ideas, better systems, and improved marketing strategies. A new owner might offer more support and engagement with franchisees if the previous franchisor was difficult to work with.