Key Takeaways
- • Princeton Equity Group closed its third franchisor-focused private equity fund (Fund III) oversubscribed with $1.3 billion raised in two months, according to the Dallas Morning News.
- • Fund III is up from $575 million raised for Fund II roughly three years earlier and $352 million for the firm's first fund, which closed in June 2021.
- • Thirty percent of Fund III's investors are from outside the United States, a notable shift as the firm broadens its limited partner base.
- • Co-founders Doug Kennealey and Jim Waskovich built the firm around four underwriting lenses: unit economics, recession resilience, fad risk, and AI resilience.
- • Portfolio companies include KidStrong, D1 Training, Barry's, Massage Envy, Strickland Brothers and European Wax Center, with more than 30 companies invested to date.
Summary
Princeton Equity Group, co-headquartered in Dallas and Princeton, New Jersey, has closed its latest franchisor-focused private equity fund oversubscribed with $1.3 billion raised in two months, according to a Q&A with the Dallas Morning News. Co-founders Doug Kennealey and Jim Waskovich, who met more than two decades ago as associates at a Boston private equity firm, started the firm in 2019 as independent sponsors after narrowing their focus from generalist investing to franchisors.
Kennealey said the firm saw a void after many franchisor-focused firms moved upmarket, prompting it to raise an institutional fund around the sector. The firm began raising its first fund in January 2020 and closed it in June 2021 with $352 million. Its second fund raised $575 million over about five months. Kennealey attributed the strength of Fund III to the team's experience, its strategy, and an attractive risk-adjusted return profile. Thirty percent of Fund III's investors came from outside the United States, which Kennealey said reflected a deliberate effort to broaden the limited partner base and European interest in a business model less prevalent outside restaurants.
Kennealey described franchisors as having high margins, strong free cash flow, diversified locations without customer concentration, resilience in recessions, and incentives aligned between franchisor and franchisees. The firm's underwriting centers on four lenses: franchisee unit economics, recession resilience of end markets, fad risk, and a newly added focus on AI resilience, which Kennealey said is supported by the human-touch nature of the services. The firm also looks for strong founders or management teams and market-leading businesses. Princeton uses its FusionPoint AI software to identify fast-growing companies and says it has invested in more than 30 companies. Kennealey also noted the growth of Dallas as a private equity hub, citing recent moves by Goldman Sachs and Morgan Stanley.
Kennealey said the firm saw a void after many franchisor-focused firms moved upmarket, prompting it to raise an institutional fund around the sector. The firm began raising its first fund in January 2020 and closed it in June 2021 with $352 million. Its second fund raised $575 million over about five months. Kennealey attributed the strength of Fund III to the team's experience, its strategy, and an attractive risk-adjusted return profile. Thirty percent of Fund III's investors came from outside the United States, which Kennealey said reflected a deliberate effort to broaden the limited partner base and European interest in a business model less prevalent outside restaurants.
Kennealey described franchisors as having high margins, strong free cash flow, diversified locations without customer concentration, resilience in recessions, and incentives aligned between franchisor and franchisees. The firm's underwriting centers on four lenses: franchisee unit economics, recession resilience of end markets, fad risk, and a newly added focus on AI resilience, which Kennealey said is supported by the human-touch nature of the services. The firm also looks for strong founders or management teams and market-leading businesses. Princeton uses its FusionPoint AI software to identify fast-growing companies and says it has invested in more than 30 companies. Kennealey also noted the growth of Dallas as a private equity hub, citing recent moves by Goldman Sachs and Morgan Stanley.
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