In late February, David Paris of Paris Ackerman was sweating through the last-minute details of his latest deal, the sale of 64 Rent-A-Center stores awaiting final approvals after two years of work. The deal closed, with Directional Capital buying 39 stores in Arizona and 25 in Indiana, Kentucky and Ohio.
The sellers are Paris and his law firm partner Mike Ackerman, and their operating partners Vik Patel and Sanjay Patel, franchisees of three brands now and on the hunt for more. The partners rolled over as minority shareholders in the new entity, and Vik Patel and Sanjay Patel will continue to operate the stores under the Purple Cactus and Purple Horseshoe names. Their management company is Purple Square.
Directional Capital is a large concessionaire in airports including LAX and is backed by another private equity firm in this transaction, Paris said.
“It’s surreal. We were able to sell it for what we would call a market multiple, and still achieve a life-changing return for all of us,” Paris said, referring to Ackerman. “From starting out as franchise attorneys, and then to reach this level of success is pretty remarkable. We’re still 45.”
The group tried to find a buyer a couple of years ago, with Paris interviewing 12 different institutions. “We started down the road with one and they had many deals on their plate, so when we weren’t getting enough attention from them, we pulled the plug.” Then they were introduced to Directional Capital and its private equity backer.
This is the first partial exit for the partnership, which also owns units in Take Five Oil Change shops, RimTyme aftermarket wheel and tire sellers, and Popeyes restaurants. To make the capital structure work, the group is a minority investor. That’s been typical in recent months in franchise M&A deals, Paris said, in an uncertain economy.
In Rent-A-Center, “it’s interesting, our success was largely attributable to our operators. Our CEO is staying on; our management group is staying on, keeping a piece of equity in the new company. We’re comfortable in knowing we’ve got those ground rails on,” he said.
“I always thought Rent-A-Center was impervious” to a potential recession, “and they’re not. The economy took a toll on our operations. So what happens then? Even our Dunkin’ deals, our Taco Bell deals,” which Paris Ackerman works on for other clients, “the lenders tighten their purse strings, and the buyers lose capital checks. So how do you bridge the gap? Either through seller financing…or creatively, with the sellers holding warrants or the seller rolling equity in,” he said.
The first part of this year slowed down for deal-making, he said. “January, February, we feel it. We feel it for sure. Smaller deals, onesies, twosies—there’s just something in the air. Everything has slowed up a bit. There’s still a lot of activity but it’s not massive.”
Beth Ewen, Senior Editor
Franchise Times
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