Is a leveraged buy-out by Cd One Price Cleaners allowed?
Cd_One_Price_Cleaners Franchise · 2025 FDDAnswer from 2025 FDD Document
12.9 Right of First Refusal. If Franchisee or any of its direct or indirect owners shall at any time determine to sell an interest in this Agreement, the Store, some or all of the Operating Assets (other than in the ordinary course of business) or a direct or indirect controlling interest in Franchisee (whether in one or a series of transfers, regardless of the period of time over which these transfers take place), Franchisee or its direct or indirect owner(s) shall obtain a bona fide, arm's-length, executed purchase agreement (and any ancillary agreements) in complete and definitive form (subject to Franchisor's consent and waiver of its right of first refusal as described herein), and an earnest money deposit (in the amount of two percent (2%) or more of the purchase price) from a qualified, responsible, bona fide and fully disclosed purchaser. A true and complete copy of such purchase agreement and any proposed ancillary agreements shall immediately be submitted to Franchisor by Franchisee, such owner(s) or both. The purchase agreement (1) must apply only to an interest which is permitted to be transferred under this Agreement, (2) may not include the purchase of any other property or rights of Franchisee (or such owner(s)), and (3) must not provide for any additional payments to be made, or any increase in the amounts payable, in the event Franchisor exercises its right of first refusal hereunder. The price and terms of purchase offered to Franchisee (or such owner(s)) in the purchase agreement for the aforementioned interests shall reflect the bona fide price offered therefor and shall not reflect any value for any other property or rights.
Source: Item 23 — Receipts (FDD pages 72–263)
What This Means (2025 FDD)
Based on the 2025 Franchise Disclosure Document, the document does not explicitly address whether a leveraged buyout is permitted for Cd One Price Cleaners franchisees. However, it does outline the conditions and procedures for transferring ownership or control of a franchise, which could be relevant in a leveraged buyout scenario. Specifically, Section 12.9 details the "Right of First Refusal," stating that if a franchisee intends to sell an interest in the franchise, the store, or a controlling interest in the franchisee entity, they must first obtain a bona fide purchase agreement and submit it to Cd One Price Cleaners.
Cd One Price Cleaners then has the right to match the terms of the purchase agreement and acquire the franchise interest themselves. This clause ensures that Cd One Price Cleaners maintains control over who becomes a franchisee and can prevent transfers that they deem unsuitable. The purchase agreement must pertain only to interests transferable under the agreement, exclude other property or rights, and avoid additional payments or increased amounts if Cd One Price Cleaners exercises its right of first refusal.
Given the absence of a direct prohibition or allowance of leveraged buyouts, prospective franchisees should seek clarification from Cd One Price Cleaners regarding their stance on such transactions. Understanding the franchisor's perspective on leveraged buyouts is crucial, as the right of first refusal and transfer conditions could significantly impact the feasibility and structure of such a transaction. Franchisees should inquire about any specific requirements, restrictions, or considerations that Cd One Price Cleaners would apply to a leveraged buyout scenario.