Source: Some of the information in this FAQ was sourced from attorneys presenting at an October 2025 American Association of Franchisees & Dealers (AAFD) conference. Some presenters represent both franchisees and franchisors, while others represent franchisees exclusively. Firms represented by presenters included Zarco Einhorn Salkowski, Rosen Karol Salis, Marks & Klein, Luther / Lanard, and Dady & Gardner.

Disclaimer: This FAQ is provided for informational purposes only and does not constitute legal advice. Franchisees should consult qualified franchise attorneys before considering or taking action.

The Role of a Franchisor

The role of a franchisor is to provide:

  1. A recognizable brand with goodwill derived from brand standards and marketing.
  2. A business model that will generate revenues for franchisees.
  3. Anything else promised in the Franchise Agreement (FA) either for a fee or for “free.”
  4. Honest disclosure in the Franchise Disclosure Document (FDD) that prospective franchisees rely on when deciding whether to invest.

How a Private Equity (PE) Firm Purchase Changes the Franchisor–Franchisee Relationship

Once private equity acquires a franchisor, the primary customer effectively shifts from the franchisee to the PE firm’s investors. The franchisor’s focus also turns from long-term partnership to near-term profit, measured in EBITDA growth and exit valuation.

What Can Happen When a PE Firm Buys an Early Childhood Education (ECE) Franchisor

When a private equity firm buys an ECE franchisor, several things can happen—many of them not favorable for franchisees. Understanding how PE firms think and what drives their actions can help franchisees protect their interests.

1. Goals and Concerns of PE Firms

  1. PE firms are data-driven and care about brand reputation and franchisee satisfaction because both affect goodwill and resale value. They want the business—often purchased at a high multiple of EBITDA—to succeed but will compromise franchisees’ financial performance if necessary to improve their own.
  2. They seek to grow EBITDA so that the business can later be taken public or sold to another PE firm for more than the selling PE firm paid for it. Every dollar of EBITDA added through growth and/or cost reduction is multiplied manifold (e.g., 15–20x) when valuing the business for sale.
  3. A typical PE investment horizon is five years—more or less, depending on market conditions and performance.
  4. PE firms aim for a high multiple on exit (e.g., 15–20x EBITDA), generating significant profits for firm principals and investors.

2. How PE Firms May Compel Franchisors to Grow EBITDA (“The ABCs”)

  1. Open new locations to boost royalty and fee revenue.
  2. Facilitate or provide franchise financing—sometimes at high interest rates or with default clauses favoring the franchisor.
  3. Add or expand branded products or services (e.g., logo items, curriculum, books, software, enrichment programs) to create new revenue streams.
  4. Cut costs not disclosed or guaranteed in the FDD or FA, even when doing so harms franchisees’ financial performance (sometimes described as “hollowing out”).
  5. Increase or add fees as permitted by the FA.
  6. Shift funds from franchisee-benefiting uses (e.g., marketing to support current franchisees) toward new franchise development or to offset the franchisor’s overhead.
  7. Remove or pressure underperforming franchisees to sell through selective enforcement of standards.
  8. Consolidate ownership among fewer, larger multi-unit operators, which can reduce individual franchise resale value by constraining the market. This strategy, described as “bigger, fewer, better,” lowers the cost of managing franchisees while aligning ownership with investor-style operators.

4. What Can Happen After a PE Purchase of an ECE Franchisor

After being purchased by a PE firm, a franchisor may or may not recognize or allow the formation of a franchisee association. Some franchisors view associations as valuable collaborators that help identify franchisee needs and deliver services or guidance the franchisor cannot provide on its own.

If the franchisor cannot meet the PE firm’s growth goals due to market saturation, high interest rates, or softening ECE market conditions—such as declining birth rates, slower housing turnover, remote work, Paid Family Leave (PFL), and competition from Universal Pre‑K (UPK) programs—it may attempt to:

  1. Reduce or eliminate support services.
  2. Add new fees or shift existing costs to franchisees (e.g., curriculum, technology).
  3. Require purchases from approved vendors, generating rebates (e.g., management software, signage, logo items).
  4. Redirect marketing funds to operations or reduce marketing budgets.
  5. Encourage franchisees to adopt new royalty‑generating programs (e.g., enrichment, Kindergarten).
  6. Expect franchisees to self‑fund local promotions or technology upgrades.
  7. Make FAs less franchisee‑friendly at renewal or for new locations.

5. What ECE Franchisees Can Do (The A, B, Cs)

  1. Lobby congressional representatives and senators to support the Franchisee Freedom Act (HR 4614) and the American Franchise Act (HR 5257). The Franchisee Freedom Act aims to give franchisees a private right of action to sue franchisors for full damages and to associate freely without retaliation. The American Franchise Act seeks to clarify joint‑employment boundaries so franchisors can provide brand‑standards‑related guidance on hiring, training, and management.
  2. Read and understand your FDD and FA—know your rights and limits.
  3. Form a franchisee association that communicates regularly with members and fosters participation.
  4. Form and contribute to a Legal Trust Fund (ideally seven figures) to deter franchisor overreach.
  5. Ask the franchisor to recognize and work collaboratively with the association.
  6. Collaborate wherever possible, reserving litigation as a last resort.
  7. Request transparency on fee spending, especially marketing.
  8. Use data‑driven business cases to push back on unfair requirements or ineffective initiatives, including declining unproven or low‑ROI investments.
  9. Request collective bargaining between the association and franchisor regarding FA changes.
  10. If the franchisor refuses recognition, bypass leadership and appeal directly to its board or PE firm.
  11. If those efforts fail, file FTC complaints where warranted and pursue class actions when appropriate under state law.
  12. Hire experienced franchise attorneys for renewals, new locations, and disputes—because “a closed mouth don’t get fed.” Franchises renewals are not supposed to be “rewrites” of the FA. If they are they may constitute illusory promises.
  13. Franchisees get what they negotiate, not what they wish for – and should avoid personal guarantees whenever possible.

6. What Prevents Franchisees from Maintaining Favorable Terms with their Franchisor

  1. FA clauses allowing the franchisor to increase or add fees or impose new standards.
  2. Written (including electronic) amendments or acknowledgments to the FA signed by the franchisee.

Separate Email Message for GSFOA Members

With regard to the attorney recommendations described in the “FAQ: What Can Happen When PE Buys an ECE Franchisor?” (make this a hotlink to the FAQ on the website), the Great Schools Franchisee Owners Association (GSFOA) had previously adopted a proactive, collaborative mission that aligns with guidance from franchise attorneys at the AAFD conference. GSFOA has reached out to GSL on multiple occasions—so far unsuccessfully—to open a dialogue. It has also established a Legal Trust Fund, retained an experienced franchisee attorney, and filed FTC complaints. The GSFOA communicates regularly with members, maintains open access to board meetings, sponsors webinars, and arranges healthcare and product discounts for its members.

How GSFOA’s Mission and Actions Align with Attorney Guidance

Our Mission focuses on collaboration with GSL to:

  • Protect and strengthen the business value and profitability of our franchisee members.
  • Foster cooperation among members to resolve common challenges and improve communication with our franchisor.
  • Contribute to the success of our franchisor.

Other current and recent GSFOA initiatives include:

  • Lobbying for the Franchisee Freedom Act (HR 4614) and the American Franchise Act (HR 5257).
  • Conducting and sharing statistically significant surveys with GSL leadership on the Wonder of Learning curriculum and Kaymbu software to drive improvements.
  • Conducting a Net Promoter Score (NPS) survey with findings to be shared with GSL leadership.
  • Maintaining open communication with members and offering regular access to products and services for members.

Next Steps for GSFOA and Members

  • Encourage all franchisees to contact their representatives and senators to support the Franchisee Freedom Act and American Franchise Act. The Franchisee Freedom Act and the American Franchise Act. The Franchisee Freedom Act aims to provide franchisees a private right of action to sue franchisors for full damages, as well as the right to freely associate without fear of retribution from franchisors. The American Franchise Act aims to clarify the role of the franchisor and franchisee with regard to what can be construed as joint employment so that franchisors can continue to provide brand standards oriented guidance to franchisees on employee qualifications, training, development, and management.
  • Encourage all franchisees to complete the NPS survey and follow on surveys to help support data driven cases for change the GSFOA will present to GSL, its board of directors, and Sycamore Partners until GSL opens a productive communication channel with the association that gives more than lip service to franchisees’ concerns and takes good faith actions that matter to franchisees.
    Expand the GSFOA Board of Directors and grow membership to represent at least 50% of all schools.
    • Obtain pledges sufficient to grow the Legal Trust Fund to $1 million within two years.