E39: Semi-Absentee and Multi-Unit Franchisees: With Megan Center

Hosts: Michael Hyam and Liane Caruso  
Guests: Megan Center, Counsel Faegre Drinker

Megan B. Center of Faegre Drinker, was on the LFG podcast to talk about the changing world of franchising, particularly around semi-absentee models, private equity involvement, and preparing for successful exits. 

With 14 years of experience in franchise law, Megan offered practical guidance for both emerging and established brands.

Podcast Summary: Misconceptions & FDD Tips For Semi-Absentee and Multi-Unit Franchisees

The Semi-Absentee Model: Promise and Pitfalls

The semi-absentee ownership model has become increasingly popular (and controversial) in franchising. Megan explained that the concept often gets a bad reputation when franchisors market it without fully developing the necessary operational structures.

Key requirements for a successful semi-absentee model include:

• Implementing a management hierarchy beyond just a general manager
• Having a principal or partial owner with authority to speak on behalf of the franchisee
• Establishing clear processes to maintain brand standards without daily owner presence
• Understanding the difference between semi-absentee and fully passive investment models

Megan noted that service-based franchises without brick-and-mortar locations tend to work best for this model, though it can succeed in any sector with proper planning. The critical issue arises when franchisors promote semi-absentee opportunities as a marketing tool without creating the infrastructure to support them.

Preparing Your FDD for Multi-Unit Growth

For franchisors looking to attract sophisticated multi-unit operators, Megan recommended several strategic approaches:

Competitive Analysis: Research what competitors offer in terms of fees and incentives for multi-unit deals.

Enhanced Financial Disclosures: Develop Item 19 financial performance representations that showcase multi-unit operator performance, not just single-unit models.

Reasonable Development Timelines: Set achievable opening schedules that your team can actually support. Emerging brands often overcommit to aggressive growth targets without adequate operational infrastructure.

Private Equity Considerations: Begin thinking about PE-friendly terms early, even if you’re not ready for institutional investment yet. Concepts like personal guarantees and non-competes that are standard in franchising can be foreign to private equity investors.

The Private Equity Factor: Preparing for the Future

One of the most significant trends Megan discussed is private equity firms investing earlier in franchise systems and increasingly on the franchisee side.

Essential preparation steps for founders seeking PE interest:

Compliance from Day One: Track all FDD receipts, franchise agreements, and exhibits meticulously. Create organized documentation systems immediately.

Clean Entity Structure: Establish separate entities for different business functions—franchisor operations, intellectual property, supply chain, and corporate-owned units. This protects against liability and makes due diligence smoother.

Financial Discipline: Keep finances separate across entities and properly document any inter-company loans or expenses from the start.

Quality Legal Counsel: Work with experienced franchise attorneys. Buyers often assess the quality of a franchisor’s legal team during due diligence.

Consistent Enforcement: Maintain operational compliance and brand standards consistently across all franchisees.

PE Investment in Multi-Unit Franchisees

Private equity’s growing interest in the franchisee side creates unique dynamics. These investors seek established intellectual property with room to scale, often requesting development rights for multiple states and first refusal rights on resales within a system.

What to Consider With Private Equity

Megan advised franchisors to consider:

• Setting limits on what percentage of the system one entity can own
• Adapting traditional franchise terms (like non-competes) for institutional investors
• Maintaining the same oversight mechanisms regardless of franchisee size
• Choosing whether to allow PE investment in franchisees at all—some brands prohibit it entirely

Common Deal Killers

When preparing for a potential sale or PE investment, several issues repeatedly derail transactions:

• Inconsistent agreement tracking and execution
• Poor operational compliance and brand standard enforcement
• Unclean financials with personal and business expenses intermingled
• Inadequate legal counsel
• Limited white space for growth due to over-sold territories
• Weak unit-level economics across franchisees

The Legal & Operational Collaboration

Whether franchising makes sense depends on your growth goals, available capital, and ability to support franchisees operationally. The legal framework is important, but operational excellence remains paramount.

As Megan emphasized, franchising isn’t about simply licensing your name—it requires comprehensive systems to support franchisees throughout their journey. For founders with exit strategies in mind, building compliance, clean documentation, and scalable operations from day one isn’t just good practice—it’s essential to maximizing value when that opportunity arrives.

The franchise landscape continues to evolve with private equity reshaping both franchisor and franchisee dynamics. Success requires staying ahead of these trends while maintaining the fundamentals that make franchise systems work: strong brands, consistent operations, and franchisee success.

Listen to the episode now to hear more from Megan and the LFG Podcast team!