Explanation

The franchisor, ABM Franchising Group, LLC (ABM Franchising), does not provide its own financial statements. However, its publicly-traded parent, ABM Industries Incorporated (ABM), provides audited financials and a full guarantee of performance. ABM's financials appear strong and stable, with significant revenue and assets. This strong parent guarantee substantially mitigates the risk of franchisor financial instability, making it unlikely that ABM Franchising would be unable to provide promised support due to financial weakness.

Potential Mitigations

• Your accountant should review the parent company's audited financial statements in Exhibit J to confirm its financial strength.
• It is important to have your attorney review the Guarantee of Performance in Exhibit J.3 to understand its scope and enforceability.
• Discuss the practical implications of relying on a parent guarantee for support with your business advisor.

Explanation

Item 20 data shows a total of seven franchisee outlets exited the system over the past three fiscal years through terminations or non-renewals, out of a base that grew from 41 to 49 units. The annual exit rate was 9.7% in 2022 but decreased to 5.3% in 2023 and 2.1% in 2024. While the 2022 figure was notable, the overall trend is positive, with exits declining and the system experiencing net growth, suggesting systemic issues may not be present.

Potential Mitigations

• Engaging a business advisor to analyze the turnover data trends in Item 20 against industry averages is a sound step.
• Speaking with former franchisees listed in Exhibit I is crucial to understand their reasons for leaving the system.
• Your attorney can help you formulate specific questions for the franchisor regarding the circumstances of past terminations and non-renewals.

Explanation

The system experienced significant growth in fiscal year 2023, adding 11 net new outlets, which represents a nearly 30% increase in unit count. Rapid expansion can sometimes strain a franchisor's ability to provide adequate support. However, Item 11 details an extensive training infrastructure, including TEGG University. The franchisor's large, established parent company also suggests that sufficient resources are likely available to manage this growth without diminishing franchisee support.

Potential Mitigations

• A discussion with your business advisor about the franchisor's capacity to scale its support systems is recommended.
• Contacting franchisees who joined during the high-growth period of 2023 can provide insight into the quality of support they received.
• Your attorney should review the franchisor's specific support commitments outlined in the Franchise Agreement and Item 11.

Explanation

The TEGG franchise system has a long history, having been offered since 1993, and was acquired by the current franchisor in 2012. Item 2 shows that the management team has significant, long-term experience with both the TEGG system and the parent company, ABM. The system is well-established with dozens of franchisees. Therefore, the risks associated with a new or unproven franchise system do not appear to be present.

Potential Mitigations

• It is still prudent to have a business advisor help you research the brand's reputation and long-term standing within the electrical contracting industry.
• Your attorney can confirm the history and ownership structure detailed in Item 1 of the FDD.
• Discussing the system's evolution and brand strength with long-tenured franchisees from Exhibit H is a valuable due diligence step.

Explanation

The franchise operates in the electrical systems maintenance and repair industry, a sector with consistent, long-term demand driven by commercial and industrial infrastructure needs. The business model, focused on essential B2B services rather than consumer trends, is not indicative of a fad. This stability suggests the business is based on a sustainable market need.

Potential Mitigations

• You should still perform your own market research with a business advisor to confirm sustained local demand for these specialized electrical services.
• An accountant can help you evaluate the business model's resilience to economic cycles.
• It is beneficial to discuss the long-term market outlook with existing franchisees and industry professionals.

Explanation

This risk does not appear to be present. The executive team members listed in Item 2 have extensive, long-term experience with the franchisor and its parent company, ABM. For example, the Senior Vice President of Franchise Operations has been with the organization since 2017, and another senior leader has been with ABM since 2001. This depth of experience suggests a stable and knowledgeable management team.

Potential Mitigations

• A business advisor can still assist in researching the professional reputations of the key executives mentioned in Item 2.
• It is wise to ask current franchisees about their direct experiences and the quality of support they receive from the management team.
• Your attorney can help verify the information presented and assess its impact on the franchise relationship.

Explanation

This risk is not present. While the franchisor is part of a larger corporate structure, its parent, ABM Industries Incorporated, is a publicly-traded operating company, not a private equity firm. Therefore, the specific risks associated with a PE firm's typical short-term investment horizon and exit strategy do not apply here. The ownership structure appears stable and focused on long-term operations.

Potential Mitigations

• Consulting with your business advisor to understand the structure and strategy of the parent company, ABM, is still a useful step.
• Your attorney can confirm the corporate ownership details provided in Item 1.
• Reviewing the parent company's public filings can provide your accountant with further insight into its long-term operational focus.

Explanation

This risk does not appear to be present. The FDD clearly discloses in Item 1 that the franchisor's parent company is ABM Industries Incorporated. Furthermore, the FDD includes the parent company's audited financial statements in Item 21 and a formal Guarantee of Performance in Exhibit J.3. This level of transparency provides a clear view of the financial backing of the franchise system.

Potential Mitigations

• Your accountant should carefully review the provided parent company financial statements in Exhibit J.
• It is critical for your attorney to analyze the scope and enforceability of the parent's Guarantee of Performance.
• A business advisor can help you understand the relationship between the franchisor subsidiary and its publicly-traded parent.

Explanation

This risk was not identified. Item 1 of the FDD discloses that Linc Corporation, a predecessor, transferred its franchising operations to the current entity in 2003, and TEGG Corporation's assets were acquired in 2012. Items 3 and 4 state there is no litigation or bankruptcy history required to be disclosed for the franchisor or its predecessors. The disclosures appear to provide a clear lineage of the brand.

Potential Mitigations

• An attorney can help you understand the implications of the predecessor history as described in Item 1.
• Independent research on the history of TEGG and Linc Corporation, assisted by a business advisor, could provide additional context.
• You might ask long-tenured franchisees about their experiences under any predecessor ownership.

Explanation

This risk does not appear to be present. Item 3 of the FDD states, "No litigation is required to be disclosed in this Item." This indicates there is no current, material legal action involving the franchisor that requires disclosure under federal franchise rules, such as franchisee lawsuits alleging fraud or franchisor-initiated litigation against its franchisees.

Potential Mitigations

• An attorney can conduct an independent public records search for litigation involving the franchisor as a precautionary measure.
• It's a good practice to ask current franchisees about any disputes they are aware of within the system.
• Your attorney should confirm the scope of disclosure required under Item 3 to ensure no information has been improperly omitted.