The year was supposed to come to a cataclysmic end on December 21, 2012. We survived the day, which perhaps can reassure the doomsday crowd that they can breathe more easily for another 5,126-year Mayan Long Count Calendar cycle.

 For the franchise industry, 2012 posed a number of less catastrophic but nevertheless daunting challenges, including continuing credit access issues, persistently high levels of unemployment, weather-related calamities and political, legal and regulatory uncertainty. Still, franchising survived and sometimes even thrived in 2012. Here are some of the highlights (and low lights) for the year:

January

• Quiznos reached a debt restructuring deal with its lenders that gave a more than 70 percent ownership stake in the troubled sandwich chain to Avenue Capital Group. The debt-for-equity deal was approved by all Quiznos creditors, reduced $870 million of debt by about $300 million and allowed Quiznos to avert Chapter 11 bankruptcy protection.

February

• Forbes ranked the Snap-on Tools franchise number 1 in its "Top 20 Franchises for the Buck" listing. The ranking was based on average initial investment, total locations (the more the better), closure rate (the number of closings over the last three years divided by the number of existing locations), growth in the number of U.S. outlets in the last three years and the number of training hours as a percentage of start-up costs. Forbes determined the ranking after evaluating data from 110 of the most established brands in franchising. Rounding out the top five franchises in the Forbes ranking were: 2. 7-Eleven, 3. Aaron's, 4. Panera Bread (NASDAQ: PNRA) and 5. ServPro. Last year's number one-ranked franchise, Dunkin' Donuts (NASDAQ: DNKN), ranked number 13 this year. Click here for the complete list.

March

• A federal district court in Massachusetts ordered commercial cleaning services franchisor Coverall to pay $3 million in damages after ruling late last year that the Florida-based franchisor's franchisees were misclassified as independent contractors and instead should have been classified as employees. In Awuah v. Coverall North America, Inc., the federal district court, which earlier had certified the question of damages to the Massachusetts Supreme Judicial Court, decided that the Coverall "franchisees" could recover treble damages dating back to 2006 covering franchise fees, worker's compensation and other work-related insurance premiums and attorneys' fees. The lawsuit was originally filed in 2007. In June, another federal judge in Massachusetts relied on the Coverall decision to impose liability on Jani-King, another janitorial franchise, for also misclassifying employees as franchisees. Franchise industry representatives, including the International Franchise Association (IFA), were apoplectic and predicted franchise Armageddon although the two cases may only pose a threat to commercial cleaning service and other franchisors that control and direct the franchisee's work and bill and collect for services provided by franchisees.

April

• The President signed into law the Jumpstart Our Business Startups (JOBS) Act, which promises to boost credit access for existing and prospective franchisees through provisions that, among other things, permit crowdfunding and lift the ban on advertising for private securities offerings to wealthy investors. The Securities and Exchange Commission has not yet finalized regulations to implement the JOBS Act.
• California's proposed "Level the Playing Field for Small Business Act of 2012" died in committee. Introduced by Assembly Member Jared Huffman, California Assembly Bill No. 2305, which was endorsed by franchisees and condemned by franchisors, would have revised both the California Franchise Relations Act and Franchise Investment Law by, among other things,
  • limiting the circumstances under which a franchisor could terminate a franchise agreement,
  • providing for the automatic renewal of the franchise term unless the franchisee, "substantially and materially" breached the franchise agreement,
  • requiring the franchisee and franchisor to deal with each other in "good faith" in the performance and enforcement of franchise agreements,
  • providing certain limited rights to an existing franchisee in the event that the franchisor develops a new franchise location by a different franchisee that is in "unreasonable proximity" to an existing franchise location and results in a 6 percent decline in annual gross sales to the existing franchisee,
  • imposing on franchisors a "duty of competence" owed to franchisees, and
  • limiting the circumstances in which a franchisor could terminate a franchise agreement without giving the franchisee an opportunity to cure, including a franchisee's failure to pay royalties and other payments
  • "Fair franchising laws" were also introduced in Massachusetts and Vermont but met similar fates.

  May

  • Munchies trumped good sense in Niagara Falls, NY when a local man who was a bit short on cash offered a Denny's (NASDAQ: DENN) cashier a bag of weed and $1 for a $9.91 take-out order. When the sensible Denny's worker refused the proposed barter transaction, the stoner canvassed the 2 a.m. clientele and, after finding no takers, ran into the woods. Police got the pot peddler's name from a customer who recognized him.

  June

  • The United States Supreme Court upheld the main provisions of the Affordable Care Act (Obamacare), which immediately caused the IFA to declare that the Mayan calendar may indeed be correct, at least with respect to franchising in the U.S.
  • Burger King, which was taken private in 2010, once again became a publicly-traded company through a complex series of transactions that bypassed the typical going public path. Rather than taking the traditional IPO route to Wall Street, Burger King merged with a special purpose merger affiliate of a public, U.K.-based investment company that was already listed on the London Stock Exchange. In a Byzantine process fully understood and appreciated only by people with way too much time and patience on their hands, the going public transaction created a new class of public shareholders who received a distribution amounting to 29 percent of Burger King Worldwide, Inc. (NYSE: BKW). 3G Capital, which took Burger King private in 2010 for $3.3 billion, walked away with $1.44 billion plus a 71 percent stake in BKW.
  • Edible Arrangements entered into a strategic partnership with Catterton Partners, a private equity firm with an exclusive focus on providing equity capital to small to middle market consumer companies. Catterton's current investments also include Bloomin' Brands Inc, whose brands include Outback Steakhouse, Bonefish Grill, and Noodles & Company.
  • Jonathan Fitzpatrick replaced Ken Walker as president and CEO of Driven Brands, Inc., the Charlotte, North Carolina-based parent of Maaco Collision Repair & Auto Painting and Meineke Car Care Centers. Harvest Partners, a New York-based private equity investment firm, became Driven Brands' majority owner as part of a recapitalization transaction effected 6 months earlier.
  • After spending the last 20 years in Washington, D.C., the International Franchise Expo, the largest franchise expo in the nation, was held at the Jacob Javits Center in New York City.

  July

  • Quiznos announced the appointment of Stuart Mathis, former president of The UPS Store chain and once a Dominos Pizza franchising executive, as president and CEO, effective at the end of the month. Mathis replaced Greg McDonald, who stepped down as Quiznos' president and CEO after 14 years with the Denver-based chain.

  August

  • CKE Inc. postponed its initial public offering, uninformatively citing "market conditions." The California-based owner of Hardee's and Carl's Junior filed a registration statement with the Securities and Exchange Commission in May, only two years after Apollo Management, a private equity firm, took the company private for just under $700 million. Had the offering been completed, public shareholders would have owned just 24 percent of the newly public company with Apollo affiliates, management and board members owning the balance. In addition, Apollo would have received a $13.8 million fee in connection with the early termination of its existing management services agreement.
  • Panera Bread announced a new $600 million share repurchase program, replacing a more than 50 percent untapped $600 million 3-year buyback program launched in 2009.

  September

  • Roark Capital Group, an Atlanta-based private equity firm with a focus on investing in franchise and brand management companies, bought Massage Envy from private equity peer Sentinel Capital Partners, which had purchased the fast growing wellness brand just 33 months earlier. Terms of the transaction were not released, but Massage Envy CEO Dave Crisalli called the bidding "a hyper-competitive process ... [with] north of 100 people taking a look at us," according to a cover story in the latest edition of Franchise Times. In addition to Massage Envy, Roark's portfolio of franchise companies includes Arby's, Bosley's Pet Food Plus, Corner Bakery, FASTSIGNS, FOCUS Brands (Auntie Annie's, Carvel Ice Cream, Cinnabon, Moe's Southwest Grill, Schlotsky's and Seattle's Best Coffee (on certain military bases and in certain international markets)), McAllister's Deli, Money Mailer, Primrose Schools, and Wingstop.

  October

  • DineEquity Inc. (NYSE: DIN), the parent of Applebee's Neighborhood Bar & Grill and IHOP Restaurants, announced on October 4 that it completed a refranchising plan initiated in 2008 to convert Applebee's into a 99% franchised restaurant system.
  • Domino's Pizza (NYSE: DPZ) opened its 10,000th store. The milestone came 53 years after Domino's opened its first store in Ypsilanti, Michigan.
  • Pine Tree Equity, a Miami-based private equity group, acquired Jewelry Repair Enterprises, Inc., the world's largest jewelry and watch repair franchise, for an undisclosed sum. The company, which franchises under the names "Fast-Fix Jewelry Repairs" and "Fast-Fix Jewelry and Watch Repairs," was founded in 1984 with a single store in a Pittsburgh shopping mall and began franchising 3 years later. Fast-Fix had 148 locations at the end of 2011with all but one franchised.
  • Denver Broncos quarterback Peyton Manning became a franchisee for Papa John's (NASDAQ: PZZA), signing a deal to own 21 Denver-area units and continuing a trend marked by pro athletes increasingly snapping up franchises. In another high-profile transaction earlier in the year, Hall-of-Fame quarterback Troy Aikman and Dallas Cowboys owner Jerry Jones teamed up to bring 50 new Dunkin' Donuts to the Dallas-Ft. Worth area over the next five years.

  November

  • McDonald's Corporation (NYSE: MCD) posted its first same-store-sales decline since March 2003.
  • Denny's franchise owner John Metz paved a path that few sentient franchise owners would follow, announcing that he would impose a 5 percent surcharge on his customers or, alternatively, ask them to stiff the wait staff on tips, in either case to offset Obamacare costs. Denny's promptly asked Florida-based Metz what planet he was from and irate customers called for a boycott. Metz then owned up to his decided lack of marketing savvy, expressing "regret." 

  December

  • Joh. A. Benckiser Group (JAB), a German private equity group, commenced a cash tender offer to purchase all of the outstanding shares of common stock of Caribou Coffee Company, Inc. (NASDAQ: CBOU) at $16.00 per share. Shares bounced by 30 percent immediately after a public announcement and sadly, but predictably, plaintiff's attorneys almost immediately began tripping all over themselves on behalf of the not-so-sorely aggrieved CBOU shareholders.
  • Hampton Hotels was ranked number 1 in Entrepreneur magazine' s annual Franchise 500® list of America's top franchises for 2013. Entrepreneur magazine's Franchise 500® listing, which was released on December 13, ranks franchises on a variety of factors, including financial strength and stability, growth rate and size of the sytem. Also considered are the number of years a company has been in business and the length of time it has been franchising, start-up costs, litigation, percentage of terminations and whether the company provides financing. For the full 2013 Entrepreneur Franchise 500® list, click on this link.
  • Tasti D-Lite announced that IFAFranchise Hall of Famer Jim Amos would step down as CEO at the end of the year. Peter Holt, the company's Chief Operating Officer, is slated to succeed Amos.

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  Mike Sheehan is a franchise consultant and attorney. He is the president of Focus Ventures and formerly served as a securities attorney and as general counsel for a Fortune 100 financial services company. His Franchise Focus Blog focuses on helpful information, tips and current news for prospective franchisees.

  Contact information:
  Email: mike@focusonfranchise.com
  Office: 703.372.6241 (703.FRANCH1)

  This article should not be construed as legal advice or a legal opinion on any specific facts or circumstances. The contents are intended for general information purposes only and you are urged to consult your own franchise attorney concerning your own situation and any specific legal questions you may have.

  © 2012 Mike Sheehan. All rights reserved.