Latest / Franchise Conversations with Fexingo: Buying, Running, and Scaling Franchise Businesses / Why Top Franchise Brands Buy Back Their Own Locations
Transcript
- Lucas: So you've built a solid franchise operation — maybe three or four units, solid cash flow, good team in place. Then the corporate office comes to you with an offer: sell it all back. We want to operate these stores ourselves. Luna: And you think, wait — didn't I buy this from you to begin with? Why would you want it back now? Lucas: Exactly. That's the buyback trend. It's been accelerating over the past few years, especially in quick-service and fast-casual. Brands like Subway, McDonald's, even some smaller players are buying locations back from franchisees. And it's not just when a franchisee is failing — often it's the successful operators getting the call. Luna: I've seen that. There was a 2025 survey of multi-unit franchisees — I think it was from Franchise Business Review — that found 23 percent had been approached by their own brand for a buyback within the last 18 months. Lucas: That's a huge number. Almost one in four multi-unit operators has had that conversation. So why? Let's start with the obvious reason: the brand wants to fix a market. If a franchisee is underperforming, dragging down regional sales, the franchisor might step in, buy the location, and operate it themselves — or find a better operator. Luna: But the interesting piece is when they buy from top performers. What's the logic there? Lucas: It's often about testing. Corporate-owned stores become R&D labs. They try new menu items, new technology, new store designs — without having to convince a franchisee to invest in unproven concepts. If it works, they roll it out to the system. If it flops, it's their own cost. Luna: So it's a controlled experiment. But I imagine the franchisee gets a premium, right? They're giving up a steady income stream. Lucas: Typically, yes. The buyback price is often based on a multiple of cash flow — similar to how you'd value a small business. I've seen deals at four to six times EBITDA, which can be very attractive for a franchisee who's ready to exit. Especially if they're looking at estate planning or just want liquidity without a long sales process. Luna: And the franchisor can then resell that location later at a higher valuation, after they've improved performance. That's a pretty neat flip. Lucas: Right. They stabilize the unit, then put it back on the market as a 'company-validated' location — which sometimes commands a higher price. There's a case I came across: a 12-unit franchise group in the Southeast — they operated a well-known burger chain. The corporate parent bought seven of their stores. The franchisee used the proceeds to diversify into a different concept entirely. Luna: Smart move. But not every franchisee wants to sell. Some see it as a vote of no confidence, or they're worried the brand will compete against them. Lucas: That friction is real. There's a trust issue. If the franchisor owns a handful of stores in your market, are they going to get preferential treatment? Better access to marketing dollars? It can create tension. That's why some brands cap their corporate ownership — say, no more than five percent of the system. Luna: Let's talk about the money behind these buybacks. It's not always operating cash. Private equity has gotten involved. Lucas: Big time. PE firms have been buying franchise brands themselves, and then they use buybacks as a tool to shift the mix. They might want a higher percentage of corporate stores to boost overall margins before flipping the brand. It's a classic financial engineering move. Luna: So for a franchisee, getting a buyback offer could be a signal that private equity is circling. That might actually be a good time to negotiate. Lucas: Absolutely. If you know the brand is being acquired or recapitalized, your units could be more valuable to them as part of a larger transformation plan. That's leverage. Luna: I want to bring this back to the listener who's a franchisee or considering becoming one. What should they do if they get a buyback offer? Lucas: First, don't take the first number. Get a valuation from an independent advisor who knows franchise M&A. Second, think about your own goals. Do you want to keep running this business for another ten years? Or is this an opportunity to cash out at a premium and do something else? Luna: And don't forget tax implications. Selling a business can trigger a big capital gains hit. Structuring the deal as an asset sale versus a stock sale matters. Lucas: Right. And if you're a multi-unit operator, the brand might only want some of your locations. That can be complicated — you might have to disentangle shared resources like managers and supply chains. Luna: If today's episode was useful to you and you want to keep it ad-free, buy me a coffee dot com slash fexingo helps. We really appreciate that. Lucas: Yeah, it makes a difference. So back to the buyback mechanics — one thing that surprised me is how often the franchise agreement itself gives the franchisor a right of first refusal if you want to sell to a third party. Luna: Right, that's in most standard franchise agreements. But a direct buyback is different — they're proactively coming to you. That's a more aggressive posture. Lucas: And it's becoming more common. I think we'll see more brands building up their corporate footprint, not shrinking it. For decades the mantra was 'franchise, don't operate.' Now it's more nuanced. Luna: What does that mean for the franchisee who wants to grow? Should they be worried about competing with their own franchisor? Lucas: It depends. If the brand is buying back stores in completely different markets — say, a corporate store in Chicago and you're in Atlanta — it probably doesn't affect you. But if they buy a location down the street, you might see different pricing or promotions. That's a conversation worth having with your franchise association. Luna: There's also a cultural shift. Some franchisees feel like the brand is 'taking back control.' But others see it as a sign of health — the brand believes enough in the concept to put its own capital on the line. Lucas: That's a fair point. A brand that's willing to invest in its own stores is showing confidence. And if they're buying from successful operators, they're paying a premium for proven locations. That's a different dynamic than distressed sales. Luna: One more angle: international markets. Some brands buy back stores in countries where they want to reset the master franchise agreement — like Subway did in Israel a few years ago. Lucas: Good example. That's a strategic buyback — you're not just buying a store, you're buying back the rights to the territory. That can be a multi-million dollar transaction. Luna: So the takeaway for our listeners: if you get a buyback offer, treat it as a serious business opportunity. Get professional advice, negotiate hard, and think about what you want next. Lucas: And if you're not getting offers but you're curious, you can always initiate the conversation. Approach your franchisor and say, 'I'm thinking about exit strategies. Is corporate interested?' You might be surprised. Luna: It's a seller's market for proven franchise operations. Brand quality matters more than ever. Lucas: Alright, that's our episode on franchise buybacks. Next time we're talking about franchise royalties — are they going up, down, or staying flat? Spoiler: the trend is not what you'd expect. Luna: Looking forward to that. Until then, thanks for listening.