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The Difference in Due Diligence for Franchisors

By Craig R. Tractenberg

In any business purchase, investment, merger or acquisition, several threshold questions come to mind. What assets are being acquired? Where is the value in the target company? What liabilities are being acquired? How should these be valued for pricing and future growth? What will the acquirer do with the target company? How far can management take the new target?

Franchise companies are different. The threshold questions only indirectly reach the issue of brand equity. Whether acquiring or investing in the franchisor, or a multi-unit franchisee, the questions are remarkably similar. Fortunately, the franchisor had done some of the work for us in the franchise disclosure document (FDD).

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