Multi-Unit Franchisee Magazine Issue I, 2015 | Page 54

FUND-AMENTAL CHANGE?
break out of the doldrums here.” Because
at that range, franchisors can become
stuck. There are hundreds and hundreds
of franchisors in that range, all vying for
the next franchisee. So we’re getting a lot
of calls. There also have been discussions
with very large franchisors with upward
of 1,000 units that have also reached out
and said they’ve reached a certain size, but
they want to accelerate their future growth
and don’t mind partnering with the fund if
that means access to our franchisee base.
I wasn’t expecting that.
When you say “partnering,” what
might that look like? If there’s a
franchisor with 1,000 or more units, the

S

fund, today, may not be capable of buying
it. It may not even be for sale. The idea
would be for us to take a minority stake
in that brand so that we would become
owners of that brand but may not control
the brand. In exchange for that ownership
stake, that partnership would include access to the fund’s franchisee base, as well
as counsel, support, and guidance from
us on how to improve their franchise offering to make it even more palatable to
multi-unit franchisees.
Why have you reduced the number of units you operate? As the
fund manager, my duty is to manage the
investments that others have entrusted me

INVESTORS SHARE THEIR THOUGHTS:
SPENCER SMITH

pencer Smith, president and CEO of the Smith Group in Cortez, Colo., operates 44 Aaron’s and 2 Big O Tires.
• Why we invested. Most entrepreneurs are always looking for a way to diversify without losing focus. That is what I believed I saw in the opportunity of
investing with Aziz and his fund: a way to diversify my
investment but to not distract me and lose focus on
what I’m doing day to day. My expectation is to create
some additional value for the capital I’m putting in. But
I also anticipate there will opportunities and networking that will come from being associated with this fund
that I would not otherwise be exposed to.
Aziz’s strategic approach and his business logic is very
focused and exceptionally clear and seems to be spot on.
I’ve looked at other venture capital and private equity
funds, and the thing I believe is unique is the reputation
Aziz has in the franchising world—a level of respect
Spencer Smith
from both the franchisor and franchisee communities.
I think he’ll have opportunities that other private equity funds would not, both in
identifying and in structuring deals. When he does decide to acquire a franchise
system, there will be a following who will want to be a franchisee of that system.
There’s going to be an inherent trust because Aziz been in the trenches like we
have, or a founder has been. If I had created a successful chain of 20 restaurants,
if somebody came to me like Aziz, who has experience in the industry and a track
record as a multi-unit operator—versus a private equity fund where the individual
hasn’t been there and done that—I think he’ll be able to outcompete for some potential deals. I think there can be a level of relatability that will exist where he will
connect and speak a founder’s language with a depth and sincerity that won’t exist
at a traditional private equity fund.
• Franchisees. Those who have interest in further growth, or getting in for
the first time should watch what is acquired through the fund and seriously consider that there’s a different perspective being applied, just because of Aziz’s background—so there may be some additional added value and upside beyond the
typical private equity acquisition.

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with. Therefore it’s incumbent on me not
to divide my time between personal endeavors and the fund’s endeavors. So over
the past year or two I have significantly
scaled down my personal holdings. The
idea is to scale it down to a very minimal
level, but I will always be a franchisee. I
believe it’s very important for me in some
capacity, even though I may not be a dayto-day manager of a franchise business,
to stay connected at that level. But by far
the substantial portion of my time will be
spent managing the fund.
What else should multi-unit franchisees know about the fund?
I think they should take pride that fellow franchisees are now able to embark
on such ventures that until a very short
time ago may have been out of the realm
of possibility, or even out of the realm of
talk. How is this possible that we could
actually control brands ourselves? Because individually, very few franchisees
have enough financial horsepower to take
on a brand. Some larger franchisees have
bought small brands, but they bought
only one. We’re a fund, we’re going to
buy many. Franchisees should take heart
that they have now reached a level where
we are in the same investment category
as those who own brands, not only figuratively, but literally, because we’re going
to become franchisors.
Also, they should look at their own
portfolio and think strongly about diversification. Franchisees are sometimes concentrated in the brand they
operate, and there could be risk there.
That risk can be mitigated in a number
of ways. One is to do multi-branding
as I’ve done previously in my career, to
have different types of brands so that if
one is not doing so well, another might
be doing better. But another way could
be investments such as the one we have
here, where they have some money allocated toward the franchisor side of
the business. So on the one hand their
“day job” involves paying royalties, but
they also have an investment in a structure that collects royalties, so you have a
little bit of what I call a financial hedge.
They should look at that and see if it’s
something that works for them.

MULTI-UNIT FRANCHISEE IS S UE I, 2015

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