Gluten-free food innovation at Pet Supplies Plus attracted Franchise Group’s interest.
After selling Liberty Tax for $245 million to NextPoint Financial in a SPAC deal in July 2021, Franchise Group acquired 560-unit Pet Supplies Plus for $700 million in March 2021, capitalizing on the booming pet market spurred by pandemic adoptions. Andrew Kaminsky, who joined Franchise Group in October 2019 as executive vice president and chief administrative officer, expects that trend to continue.
“All the innovation in the human food business is moving to pets—gluten-free, natural—which continues to drive demand and the business forward,” he said. Franchise Group bought Pet Supplies Plus from Sentinel Capital Partners.
The team was attracted to investing in a growing business that was already 60 percent franchised, one that “fit perfectly with what we’re trying to do; build a portfolio of brands on the franchise end, with low capex requirement that drives growing discretionary cash flow stream,” Kaminsky said, referring to capital expenditures.
Franchise Group had to refinance the balance sheet of the company’s outstanding term and revolving loans during the transaction, since they were at the same time obtaining $1.3 billion in new debt financing. “Selling Liberty at that time played into that strategy well—telling investors of our conservative balance sheet, leveraging our ratio and EBITDA, returns on a leverage basis,” Kaminsky said.
Then Sylvan Learning came into play. Franchise Group bought the tutor franchise in an all-cash transaction valued at about $81 million in September 2021. Founded in 1979, Maryland-based Sylvan Learning is a chain of tutoring services with more than 600 locations in 49 states, including more than 560 brick-and-mortar centers.
With only six corporate locations, the franchise growth potential of Sylvan was a contributing factor to Franchise Group’s interest, as well as the skyrocketing needs for tutoring services during COVID and the company’s experienced management team in the education market. For Franchise Group’s fiscal year 2021, Sylvan is estimating total systemwide revenue of approximately $169 million, company revenue of approximately $30 million and adjusted EBITDA of approximately $12 million.
“It was an easier transaction. No bankers were involved there, we negotiated directly with the seller. We spent a lot of time with management and looking at the business without pressure,” Kaminsky said. The management team at Franchise Group performs all diligence and negotiations with sellers and banks.
Pet Supplies Plus has more than 560 pet supply “supermarkets” in 36 states.
Franchise Group also acquired W.S. Badcock in a cash transaction valued at approximately $580 million in November 2021. Badcock Home Furniture is a chain of more than 380 stores in eight Southeastern states, including 315 franchise stores. Run by five generations of the Badcock family, the opportunity to buy arose because Franchise Group’s CEO, Brian Kahn, is from Florida and was familiar with the brand, Kaminsky explained. Kahn expressed interest before they were ready to sell.
“We were very familiar with the management team from the start, so it was a very good fit for us. We looked at Badcock as the opportunity to take a family-run business, which traditionally is run very different from a public company, and drive efficiency and cash flow,” Kaminsky said.
It also acted as a diversification play for Franchise Group, given Badcock’s presence in the Southeast and in rural markets. And it serves as a scale transaction with Franchise Group’s American Freight business because of the overlap of supply chain.
Franchise Group has a portfolio of more than 2,600 units; its other brands are Buddy’s Home Furnishings and The Vitamin Shoppe.
“Dealing with a family always adds complexity,” Kaminsky added. “It takes time to go through that with a family that’s never sold their business, so we’re very patient buyers and very specific in the way we do things and our diligence. We worked through that with the family to make sure they were comfortable leaving their legacy with Franchise Group.”
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After Liberty Tax Exit, Franchise Group Adds Pet Supplies Plus, Sylvan and More - Franchise Times
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