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Roark Capital Buys Massage Envy, Ass'n Shut Out

Massage Envy store in Denver area
A Massage Envy store in Centennial, Colo, photo: sparks

ATLANTA — While the regional franchisee developers association hoped to play an integral role in finding a new buyer for Massage Envy, one with whom they could form a long-term relationship alliance, that prospect has now diminished.Roark Capital announced last Friday that it has acquired the leading U.S. provider of therapeutic massage with no mention of collaboration with regional developer franchisees.

In a statement last week, Roark’s managing partner Neal Aronson stated, “We believe Massage Envy has significant opportunities to enhance its leadership position in the spa and massage industry.”

After current owner Sentinel Capital Partners announced its intention to sell the franchise company, the Independent Association of Massage Envy Regional Developers Inc issued its own press release. President Jim Fitzsimmons said developers had always been the engine of growth and continuity for the company. Its members were “committed to preserve, protect and eventually harvest that equity for the benefit of themselves and their families.” He declared that their organization hoped for a seat at the table “as a true stakeholder in the sale of the company that they have built from the ground up.”

Despite not being involved in the selection process of finding a new owner, Dennis Conklin, recent member of the franchisee organization’s board of directors, had only good things to say about the acquisition. “The regional developers are excited about Roark Capital buying the company. We look forward to working with them and building the company into the best business ever. We see nothing but great things on the horizon.”

President Fitzsimmons agreed. He said he has heard positive things about Roark from multiple sources, some unsolicited. “We’re anxious to meet with them later in October at our regional meeting in Las Vegas,” he stated. Fitzsimmons told Blue MauMau the equity firm did its due diligence prior to closing. “They spoke to at least two regional developers, probably more.”  

The regional developer organization started in 2007 to recruit franchise candidates, and to find and help build out prime locations for franchisees. The association also provides advice, consultation, training and oversight of the brand’s franchise clinics. Currently, they have 53 regional developers as members.

The Atlanta-based equity firm touts that with last week’s acquisition it has 22 franchise and multi-unit businesses. Collectively, Roark Capital Group now has more than 4,100 franchise owners with 11,000 locations and $10 billion in system-wide revenues across 50 states and 56 countries. Franchise companies included in Roark’s portfolio are Arby’s, Auntie Anne’s, Batteries Plus, Carvel Ice Cream, Moe’s Southwest Grill, Schlotzsky’s and Wingstop. Roark Capital states that it currently has approximately $3 billion of equity capital under management.

Private equity firm could phase out developer franchisees

John Gordon, an observer of private equity operators and principal of Pacific Management Consulting Group, notes that the royalty stream from the regional developers could be an issue. Gordon observes, "Generally, private equity firms work towards a four to six year ownership cycle, although it can be far less. They are always looking for revenue and cost synergies. It would be logical for private equity firms to re-examine the development model and the regional developers role in it."

Gordon observes that franchisors set up area development agreements to have developers sell units so as not take on the direct expense of a sales organization themselves. "This is a way of putting performance risk on the developer while saving expense for the franchisor," says Gordon.

Gordon thinks that the private equity firm could very well be looking at the purchase as an opportunity to knock out the franchisor’s area developers who share in a portion of the royalties. Gordon said the firm could conclude that it could develop (sell) franchises themselves.

The San Diego consultant said that although he was not familiar with their specific agreement, regional developers might be concerned with their inability to renew the franchise contract. The regional developer agreement is certainly something a private equity firm would note when performing their due diligence. “They might say, ‘Oh, half of the royalties are going to the area developers. Wow, I wish we were getting those royalties.'"

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