The Outlook Of Franchising In M&A Activity For 2025
by Patrick Galleher, originally published on Forbes.com on February 6th, 2025
Success in franchising has always depended on two foundational pillars: strong unit-level economics and satisfied franchisees. These elements form the bedrock of the industry. Franchise systems with healthy unit-level economics demonstrate consistent profitability, which is critical for both franchisee retention and investor confidence.
The intersection of strong unit-level economics and satisfied franchisees is not just a foundation for operational success, it’s also a critical driver of mergers and acquisitions. According to PwC, merger and acquisition (M&A) activity in 2025 is expected to accelerate, fueled by the availability of capital and the growing need for businesses to adapt and scale. Franchisors with proven systems, scalable models and a focus on franchisee satisfaction are particularly well-positioned to attract investors.
QSR, health and wellness and home services lead 2025 M&A activity.
In 2025, I expect to see a dynamic resurgence in M&A activity within the franchising industry, with several key sectors driving this growth. Quick-service restaurants (QSRs) are poised to witness increased activity in the M&A space, thanks to their proven adaptability and resilience. IBISWorld reports that the QSR market has grown at an annual rate of 3.2%, bolstered by strong consumer demand for convenient, affordable dining options.
Beyond QSRs, the health and wellness sector is emerging as a standout in the M&A space. Franchises in fitness, health, beauty and clean eating are thriving as consumers prioritize well-being and self-care. According to the Global Wellness Institute, the wellness market is projected to grow to $7 trillion by 2025, driven by demand for boutique experiences and personalized health solutions. Recurring revenue models, such as gym memberships and meal subscriptions, make this sector particularly attractive to private equity investors.
Additionally, industries like home services, youth enrichment and senior care are positioned for significant growth. The U.S. Census Bureau projects that by 2030, all Baby Boomers will be over the age of 65, creating a surge in demand for senior care services. Meanwhile, the home services market continues to expand as homeowners invest in upgrades and maintenance, with Technavio predicting a compound annual growth rate (CAGR) of 10.5% between 2024 and 2029. These sectors benefit from consistent demand and scalable operations, making them prime candidates for strategic acquisitions.
M&A activity is set to accelerate in 2025.
As mentioned, mergers and acquisitions in the U.S. are projected to gain significant momentum in 2025, driven by a combination of easing interest rates, abundant access to capital and the growing imperative for businesses to innovate and scale. With the Federal Reserve signaling a gradual reduction in interest rates, the landscape for dealmaking is becoming increasingly favorable. Lower borrowing costs are expected to enhance leverage capacity and elevate valuation multiples, creating fertile ground for M&A activity across sectors. According to Baird, this economic shift offers a promising outlook for dealmakers looking to capitalize on these conditions.
The year ahead is also set to highlight the rise of mid-market deals, spurred by increased margin pressure and the pursuit of scale. Private equity sponsors, under pressure to deploy capital, are eyeing opportunities in carve-outs and spin-offs to generate value. At the same time, digital transformation and artificial intelligence (AI) integration are poised to redefine the M&A process, streamlining resource-intensive stages such as target identification, due diligence and post-deal integration. As companies leverage these technological advancements, they will better position themselves for greater operational efficiency and competitive advantage.
For franchisors, the opportunity is especially ripe. The franchising industry stands to benefit from strong consumer demand, scalable operations and diversified revenue models that appeal to investors seeking stability and growth potential. Private equity and strategic buyers are increasingly emphasizing culture-building and franchisee satisfaction, recognizing these as critical drivers of long-term success. Franchisors that align their strategies with emerging trends, such as AI-driven efficiencies and enhanced digital capabilities, will be well-positioned to attract investment and thrive in a competitive marketplace.
While economic stabilization and strong equity markets provide a foundation for increased activity, dealmakers must remain vigilant. Geopolitical uncertainties and regulatory shifts may introduce complexity, requiring agility and a proactive approach to risk management. Companies that successfully navigate these challenges, while focusing on people and culture integration, will lay the groundwork for a smooth transition for their workforce and set the stage for sustainable growth.
The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.
