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Why Private Equity May Be the Preferred Vehicle for Franchise Expansion

By Craig R. Tractenberg
March 01, 2006

Why is private equity funding the hottest thing in franchising today? In the past 12 months, private equity buyouts have included well-known brands such as Cinnabon, Church's Chicken, Taco Bueno (a regional taco maker), and regional frozen dessert operator Rita's Italian Ice.

In the last quarter of 2005, two huge transactions occupied the financial stories about franchising. First, Dunkin' Brands Inc., the umbrella company for the Dunkin' Donuts, Baskin Robbins and Togo's brands, was spun off by Pernod Richard, the French wine and spirits manufacturer, to raise money for its recent acquisition of British distiller Allied Domecq PLC. Dunkin' Brands was purchased for more than $2.4 billion by a consortium of equity firms Bain Capital Partners, the Carlyle Group, and Thomas H. Lee Partners. Second, Quiznos, the fastest-growing sandwich restaurant chain in the United States, hired Wall Street investment bank Goldman Sachs Group Inc. to find a buyer for the chain.

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