Explanation

Item 20 data shows steady and significant system growth, with a net increase of 50 franchised outlets over the past three years. While growth can be positive, rapid expansion can sometimes strain a franchisor's ability to provide adequate support, training, and resources to all franchisees. You should ensure the franchisor's support infrastructure has kept pace with its growth.

Potential Mitigations

• Asking current franchisees, both new and established, about the quality and timeliness of the franchisor's support is a key due diligence step.
• Your business advisor can help you question the franchisor about their infrastructure for supporting this larger network of locations.
• A careful review of the franchisor's support obligations in Item 11 with your attorney will clarify their contractual commitments.

Explanation

This risk was not identified. CARSTAR and its predecessors have been franchising since 1989, managing a large system of over 450 units. This indicates a long operational history and an established brand, not a new or unproven system. However, for any franchise, especially new concepts, a lack of a proven track record can increase the risk of business model failure and inadequate support.

Potential Mitigations

• For any franchise investment, it's wise to have an attorney investigate the franchisor's history and corporate background.
• A business advisor can help you evaluate the maturity and stability of the franchise system you are considering.
• Speaking with the longest-operating franchisees can provide valuable insight into the system's evolution and stability.

Explanation

This risk was not identified in the FDD package. The automotive collision repair industry is a long-established and essential service sector, suggesting it is not a fad. However, any business can be subject to market shifts, and it is important to assess whether a franchise concept has long-term consumer demand and is adaptable to changing economic conditions and consumer preferences.

Potential Mitigations

• A business advisor can help you conduct independent market research to confirm sustained consumer demand for the franchise's services.
• Evaluating the franchisor's commitment to research and development is an important step in assessing long-term viability.
• Your accountant can assist in modeling the business's potential resilience to economic downturns.

Explanation

The management team listed in Item 2 appears to have extensive experience in the automotive and franchise industries, with many executives holding long-term positions within the parent company, Driven Brands, or its various affiliates. This suggests a stable and knowledgeable leadership team, reducing the risks associated with inexperienced management. However, you should still verify their reputation within the industry.

Potential Mitigations

• It is always prudent to perform your own due diligence on the backgrounds of the key executives listed in Item 2.
• A conversation with current franchisees can provide insight into their direct experiences with the management team's competence and support.
• Your business advisor can help you research the public reputation and track record of the franchisor's leadership.

Explanation

The franchisor, CARSTAR Franchisor SPV LLC, is a subsidiary of Driven Systems LLC, which is ultimately owned by the publicly-traded Driven Brands, Inc. The FDD properly discloses this relationship and includes the financial statements for both Driven Systems LLC (the guarantor) and Driven Brands, Inc. (the ultimate parent). This level of disclosure provides financial transparency and appears to meet regulatory requirements.

Potential Mitigations

• An accountant should review the financial statements of the franchisor, the guarantor, and the parent company to get a complete financial picture.
• Your attorney can confirm that the provided disclosures meet all federal and state requirements.
• Understanding the relationships between the various corporate entities is crucial, and a business advisor can help clarify the structure.

Explanation

This risk was not identified in the FDD package. Item 1 provides a detailed history of the franchisor, its predecessors, and its parent companies, including the dates of various acquisitions and a major restructuring transaction in 2015. The disclosure appears comprehensive. For any franchise, it is important to understand the history of the system, as past problems or instability under a predecessor could potentially carry over to the current franchisor.

Potential Mitigations

• Your attorney should review the predecessor and affiliate disclosures in Item 1 to ensure they are complete.
• Speaking with long-term franchisees who operated under a predecessor can provide valuable historical context.
• Independent research into the history of a brand and any predecessors can sometimes uncover issues not detailed in the FDD, a task your business advisor can assist with.