On the latest episode of Behind the Buyouts, Franchise Equity Partners founder and co-managing partner Michael Esposito dove into the private investment firm’s strategy, evolving franchising trends and the generational wealth transfer that presents a growing opportunity for investors.

Launched in 2021 as a portfolio company of HPS Investment Partners LLC, New York-based FEP makes minority, passive and permanent investments in family- and founder-owned businesses in stable, fragmented sectors.

The firm focuses on quick-service restaurants, automotive dealerships, beverage distribution, heavy equipment dealerships, residential and commercial services, fitness, health and beauty, professional sports and other multisite consumer services companies.

“We realized that most of these industries were relatively recession-resistant — they had family ownership in them, very attractive dividend yield and in many of the verticals we ultimately got involved in, there’s not a lot of private equity,” Esposito said. “And most of the sectors were going through consolidation, and even with the wealthiest families, sooner or later, they need more money.”

Esposito and co-managing parter Scott Romanoff worked as investment bankers at Goldman, Sachs & Co. Esposito decided to focus on franchising after leaving Goldman, when his personal investment in a Jersey Mike’s franchisee took off. He convinced Romanoff to join him in launching a franchise investing business.

FEP’s investments include Reliable Residential Holdco, a franchisee of the Neighborly Inc. Precision Garage Door Service brand; Velocity Auto Care, a franchisee of preventative auto maintenance brand Valvoline Inc.; and franchisees of restaurant and fitness concepts including Taco Bell Corp., Auntie Anne’s Inc. and Planet Fitness Inc. (PLNT). The firm started with $1 billion in investment capital from HPS and has deployed almost two-thirds of the funds.

Check out the podcast with Michael Esposito below:

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