Ask investors what they look for in emerging brands these days and you’ll likely get an assortment of answers.

The one thing that they can pretty much agree on is that when considering investing in an emerging franchise brand it needs to have demonstrated success outside their core market and opening new locations.

“We look at a lot of things in their FDDs starting with their Item 19s, which tells you about their unit volumes and economics, and Item 20s, which tells us how expansion is going and their closures,” said Jim Waskovich, co-founder of Princeton Equity Group about franchise disclosure documents.

Waskovich joined Brett Bishov, managing partner of Capital Insight, and J. Patrick Galleher, CEO and managing partner at Boxwood Partners for a webinar called “Exploring Buyers’ Appetites for Emerging Brands” as part of Franchise Times Dealmakers Week. Topics covered in the six-part webinar series included: mergers and acquisitions, valuation, financing and featured the reveal of this year’s winner, Blackstone’s acquisition of Tropical Smoothie Café.

“We look for how the first quartile of franchisees are doing and then the second quartile and compare,” said Galleher. Boxwood also looks at franchise publications, how franchisees feel about their franchisor, “and how well they’ve performed in different markets. Look, every brand hits hiccups as they grow but we want to see them improve in those areas over time.”

Bishov emphasized the importance of emerging brands seeking outside capital to provide validation on their financial and development success. He said Capital Insight wants to know that the brand they are interested in can provide proof of strong returns on investments.

“We look for three attributes from brands. Have they traveled outside their core market? Have they sustained the market they considered their core market? And what is their ROI?” Bishov said. “I’m not suggesting that all three need to be checked off because some have some stability, some optimization among other things. But it’s very important to make sure that brands that have traveled outside their core market show that they can adopt to different markets.”

Each of the panelists said they look at dozens, if not hundreds, of emerging brands each year. They said it would be rare for them to consider investing with any brand with fewer than 50 units but when they do, they make sure to talk to as many franchisees as possible.

“Typically, when we get involved in an emerging franchisor, they’ve already gone through that kind of first ramp up of just having a couple of franchisees,” Galleher said. “We need to know how quickly was the payback on their franchise investment because the franchisee investment is critical for long-term success. So, if it takes more than three or four years to recoup that initial investment, the franchisor probably has to look back at their business model and their royalties and some of the inputs into the franchisee P&L to really make sure their franchisees have an under three-year payback on their investment.

“We don’t see many systems grow very well or create enterprise value at the franchise level if their franchisees aren’t profitable quicker,” Gallaher said.

These firms see plenty of emerging brands come through who aren’t ready for an outside investment, but that doesn’t mean they won’t be ready at some point.

“We’ll always spend time talking with them and getting to know them. We’re very thoughtful that way,” Bishov said. “But if the business is having its challenges, we will let them it’s not right time, but if these variables can stabilize and improve six months, 12 months, 18 months from now, let’s revisit it again later.”

Galleher said Boxwood is often starting conversations with brands years before to going to market.

“We tend to provide a lot of feedback,” he said. “We’ve done a lot of franchisor transactions over the last five, 10 years and we try to help emerging franchisors get to the point that we can take them to market.” 

One thing the three panelists agreed on was their prediction that the dealmaking market in franchising will pick up significantly when interest rates are lowered and the economic uncertainty around tariffs and the fear of a possible recession subside. They’re each optimistic that the market will improve.

“Franchising as an industry outperforms in almost every economic environment,” Waskovich said. “I think 2025 is going to be a great year for franchising; for the franchisors, for franchisees just because of the strength of the business model.”