€™s in October 2009, but has since fallen around 100 stores behind as the operational approach of the private equity owners has seen a major exodus of franchisees. Private equity owners generally work to a five year exit strategy, with NBC Capital looking to expand the Eagle Boys Pizza store network and acquire other bolt on businesses ahead of a trade sale of public float. As part of the strategy, NBC Capital acquired the 60 store Delgani Bakery Cafe chain in January 2013 and rapidly expanded the number of stores throughout Australia, as well as opening in India and a planned move to the Middle East. NBC Capital’s plans were to almost double the number of stores from 180 it acquired the business in 2007, to about 230 within its first two years of ownership. But the private equity owner is now stuck in quagmire, with doubtful prospects of a profitable exit by a trade sale and virtually no chance of floating the business because of legal disputes, falling revenues and earnings, and a shrinking store base. Franchisees have claimed unconscionable practices by the franchisor and have argued in legal documents that support services to franchisees and marketing were cut to the detriment of their businesses. Some franchisees have complained they were forced to bear the costs of price wars waged against other chains as the franchisor tried to boost marketshare and sales to enhance returns when exiting the business. There are also complaints that the franchisor acted harshly when franchisees struck difficulties in their businesses, preferring to pursue legal and debt recovery actions rather than implement support packages. Franchisees claim that NBC Capital’s focus after acquiring the business was almost entirely on expansion rather supporting existing franchisees, employing public relations strategies to enhance the saleability of the business while cutting advertising and marketing support for stores. NBC Capital denies the claims of the franchisees and has indicated it will vigorously defend its position and the reputation of the franchise. The company contends that it provided retail support services and developed a comprehensive marketing program and product and service initiatives to boost sales for stores and to build brand awareness. Eagle Boys Pizza is currently advertising for new franchisees throughout Australia and, in some instances, it is understood that the company is keen to replace stores that have closed. Private Equity woes The problems at Eagle Boys Pizza are not unlike the difficulties faced by another private equity firm, Pacific Equity Partners (PEP), which acquired the Angus & Robertson and Godfreys chains that included franchised stores. Franchise outlets require a different management approach to company-owned stores and the financial flexibility is impacted by the resources franchisees have available to fund head office business strategies. While NBC Capital’s investment in Eagle Boys Pizza included management shareholdings in the chain, there were changes to the operation of the business to support the expansion plans and ultimate sale of the business. PEP encountered similar clashes between the objectives of a private equity investor and the franchise business model, with disputes in the Godfreys business and a sharp fall in sales and earnings. Angus & Robertson ended up in the hands of receivers as part of the RedGroup Retail entity created by PEP, while Godfreys was sold in a trade sale at a significant loss following a debt restructure. While NBC Capital now faces the prospect of writedowns on its investment and potentially a loss-making exit from Eagle Boys Pizza, it would seem a match of private equity capital with a franchise business model is not impossible. Janine Allis lifted the value of their franchise company, Retail Zoo, which owns Boost, Salsa’s Fresh Mex Grill, Cibo Espresso, and Hatch Chicken Shop, in a deal earlier this year that recruited Bain Capital as an investor. The May deal saw Bain Capital acquire the shareholding of another private equity investor, The Riverside Company, and shares owned by Geoff Harris and the Besen family, valuing Retail Zoo at around $185 million. Earlier this year, Bain Capital sold its shareholding in Domino’s Pizza in Japan to the Australian franchisor, which is the market leader in the competitive pizza category in Australia and is also continuing to expand overseas.