In the panel discussion “Private Equity in Restaurant Franchising” at the NRA Show today, conference attendees found out that a good private equity investment goes well beyond the influx of cash; it requires a solid partnership between the investor and the company.

The first step in the process of any outside investment, says principle of Roark Capital Scott Pressley, is performing diligence on the part of both the restaurant company owners and the private equity company. Pressley says that owners need to fully consider their goals and honestly assess their company before deciding to partner with a private equity group. In addition, owners need to look carefully at potential partners to ensure that their goals will match.

Steve Romaniello, CEO of Carvel parent company Focus Brands, agreed. In 2001, Carvel found itself in a downhill slide after years of neglect under the ownership of a large cap private equity firm. The chain had dropped to 332 stores from a high of over 800 and had changed its focus to capital-intensive supermarket distribution. Less than 20% of franchisees said they trusted the company. Carvel had the wrong private equity partner.

Enter Roark Capital in late 2001. Under Romaniello’s leadership and support from Roark, Carvel has grown to over 530 stores in four years and franchisee satisfaction with the company is well over 90%. For Carvel, the relationship with Roark provided management with a mechanism to reduce debt, increase cash, and allow for the time needed to make changes. The partnership has worked so well that Carvel has met or exceeded every financial metric goal set by Roark. With the addition of Cinnabon and certain rights to Seattle’s Best Coffee franchises, the once failing company has formed Focus Brands with the intent of further acquisitions.

But there is more involved in private equity transactions for franchisors than finding a good investment partner for management. Great American Cookie franchisee Lawrence “Doc” Cohen says that franchisees need to be on board before management considers selling to investors. When the owners of Great American Cookie tried to sell to a private equity group in the early 90’s franchisees effectively killed the deal by relating their displeasures of how dysfunctional the system was.

To prevent such complications, Cohen believes it is absolutely necessary to inform franchisees early in the process of considering outside investment. Franchisees need assurances of consistency in company management, franchisor-franchisee relations, operational systems, franchisee fee structures, and company philosophy. By doing so, franchisees will lend credibility to company management when private equity firms show interest.

Ultimately, the successful private equity investment for both sides is about a partnership. Finding the right match that is amenable to both the franchisor and franchisee makes all the difference in how the investment pays off for the company and the private equity partner.