SUMMARY OF THE DEBATE-DINNER-November 28th

AGF Private Banking, 20 rue Le Peletier - 75009 PARIS

It is within the magnificent building of AGF Private Banking in the 9th 'arrondissement' of Paris that was held the last CEDRE debate-dinner with ever more stakeholders and participants (75 participants including 60 franchisors).
This time, the floor was given to representatives of investment funds who delivered their knowledge and experience to a passionate audience.
The question was put in these terms: What interest can there be to bring networks and investment funds together ?
Having set the scene and reminded all issues opposing the "Interdependent" and the "Volunteers" and especially the very positive message about "the franchise institution", the President of the French Supreme Court [Cour de cassation], Guy Canivet himself, Mr Olivier GAST President of the CEDRE, gave the floor to Mr. Dominique Larue from the group AGF Private Banking and partner of the CEDRE to set the tone of tonight's theme: Managing a business asset and the use of Investment Funds.

Managing  business assets necessarily leads to this conclusion: "There comes a time in the life of a company where one must go beyond concepts and create economic value, create a capital and promote it."

For this purpose, he explains, different options are to be considered:
- Looking for a financial partner,
- Or maybe looking for an interlocutor partner. This choice depends, first, on what is sought and secondly, how we want to work.

Does one seek in priority to be master of his decisions, or in priority a relational or strategic support?

These are questions that companies face and which lead them necessarily to raise some day the question of using an investment fund.
On this issue, Mr. LARUE reminds everyone of the various phases of a capital-intensive operation :
- The legal and regulatory dimension
- The "asset" dimension that has no other aim than to "prepare today and tomorrow" and which needs to address four issues: protecting and enhancing if need be its private wealth; thinking of a specific remuneration and deferred revenues; looking for an ad hoc insurance; preparing its exit and its fiscal optimization.

♦ With these introductory lessons or reminders, the first roundtable of the debate dinner tonight began with the theme:
The capital investment. How the funds and their funding have they allowed franchisors to grow?

In response to questions from managers of networks, three specialists of investment funds, Frank DEPERIER (Capital Partner), Frank URBANSKI (EVOLEM investment funds) and Eric DEJOIE.
All were found to agree that many SMEs in France would be affected by capital investment and could benefit from this form of association with a financial partner.
This combination makes it possible to carry out a capital increase to which financiers subscribe.
As investors, these partners enter the capital to make money and expect a margin of 20 to 25% per year.
This is the annual return ie the average return invested at the exit.
However, and again all stakeholders will agree to say, 76.10% of investments are lower than this expected rate.
Still, patience is golden in this area that meets on this point the franchise area and the minimum investment horizon is 3 to 5 years.

We have also noted the presence in the debates, of young networks that specialize in human services, bringing with them specific and particular difficulties that Mr Menguy, Barrister (Gast law firm) has very clearly expressed.
He has chosen this opportunity to inform the assembly on the issue of control of financial flows in this type of services.
Taking the example of a tutoring service at home, he explains that the franchisor keeps for a moment the money (donating directly to the State the amount of employee contributions) paid by parents as a counterpart to courses given to their child.
Therefore, Mr Menguy draws attention to this crucial question of whether the professor is an employee of the parent or the franchisee. It is indeed according to him important to be extremely vigilant regarding the organization of financial flows.
To overcome these problems of identification and characterization peculiar to lawyers, a coupon system was introduced.
Indeed, it is when the coupon reaches the franchisor that it determines the exchange value to affix to it as he has itself already been paid.
Thus, this system allows it to avoid the reclassification of contracts (employment contracts ...).

♦ Second Roundtable: Promoting its business with the help of a fund and then transmitting its network: a strategic and legacy operation.
Michel QUINIOU (former CEO of AGATHA) opened the second session on the enlightening tale of his encounter with investment funds within the framework of its AGATHA network.
He launched the debate on burning issues for all Franchisors: What are the criteria used by the funds to invest?
If in his case, the criteria that were developed left him a bitter taste and a very moderate trust in investment professionals, the latter in the persons of Francis CAVALIE d'X- ange, Laurent Jamet and Dominique TRECHOT d' AUCTEOR, recalled the dedication and seriousness of the majority of them and gave as an evidence the actual factors taken into consideration.
First, according to them, and common sense confirms it easily, one must assess the quality and motivation of the managing staff.
The relevance of the strategy is also considered with particular attention, as well as the prospects of return and capital gain.
Finally, the market potential and growth forecasts should not be neglected (eg 150 openings in 5 years would be a good average).

♦To close the debate, Mr. Gast and Mr Charles SEROUDE, franchising consultant, have, in the light of previous interventions, outlined the perspective of franchisors. What do they need to know to negotiate an incoming fund.
Charles SEROUDE to wonder then about the reasons for the caution of funds  towards franchising (in fact  ignorance of ratios specific to the franchise). For him, a simple reason: the most misunderstood ratio of the franchise: paid royalties / charged royalties.
As to Mr GAST, he answered the question of what the funds must finance. At what level should funds intervene in the franchise? 
Undoubtedly for the President of the CEDRE, their role should be to structure the franchisor. They must be present to hire executives, managers etc. ...
Without forgetting the golden rule of franchising that "One must support the rapid growth through good governance"!

During the cocktail reception, the "scramble" of franchisors for owners of investment funds was a pleasure to see ...

Author:  Olivia Gast