The advantage of doing business with a large company is multiplied when a MBE is involved, particularly when it comes to reaching the nontraditional customer, such as Hispanics and other minorities.
“It’s always good for franchisors to have franchisees that look like their customer base,” James says. “Franchisors don’t want to be perceived as an extractor of wealth from a community.”
Business owners from the target market can often provide the best market insight, Richardson adds. “It enables people to have stronger, deeper, and more long-term ties within those communities, which should lead to more profits, more revenue, and more wealth within the neighborhood in which they’re doing business.”
Deals with large MBEs also advance diversity initiatives. “You can really make a game-changing move overnight by signing up the right person with the right capital structure with the right management team,” James says.
Certainly, timing and talent came together in 2004 for James, who partnered with the Goldman Sachs Urban Investment Group to purchase 37 Burger Kings in Chicago.
James’s food-industry experience helped seal the deal, Jordan says. “Chuck was able to come into our office and show us that he was somebody we want to back, who we think will be successful.”
The fourth generation to own and run his family’s wholesale food-distribution business, James’s experience includes an e-commerce business, ProduceOnline, which in 2000 merged with World Commerce Online. He is also the former chairman of the board and CEO of Dallas-based PrimeSource Foodservice Equipment, Inc.
When he decided to venture into the quick-service restaurant arena, he approached Goldman Sachs. “I said, ‘I’ve got the experience. I’ve got the relationships. I know the industry. I have some capital, but if we can combine my capital with your capital, we could do a much larger deal that would make sense for everybody,’” James says. “And that’s what we did.”
Financial backing has become imperative for entrepreneurs who want to go from zero to 37 or more stores in one deal. It is also key for franchisees looking to expand.
In 2006, Bridgeman Foods received funding from Scottsdale-based GE Capital Solutions, Franchise Finance to triple its size within the Chili’s franchise system. The company finalized a $27 million deal with the GE division in 2004 to refinance existing debt and improve cash flow for future construction.
There are other reasons to partnering with an investment firm. For one, it increases the likelihood of a successful outcome, Jordan says. Firms rarely handle transactions that might fail.
Investment firms also have a wealth of resources, including savvy lawyers and the staff to handle due diligence.
“We are more efficient to deal with, and we’re also dealing with larger dollars,” Jordan says. “More can be accomplished with the same amount of effort.” As a result, sellers are more likely to look favorably on the deal, he says.