Stretching to toddler gyms
Private equity-backed firm battles Md. franchise owner — and this fight isn’t for kids
Tiffany Cianci spends most of her days in socks, padding around the fitness studio she operates in Frederick, Maryland. Her clients are kids ranging from 4 months to 12 years old. They come to learn somersaults, try the monkey bars, sing some songs. (“Little Red Caboose,” complete with a train-whistle accompaniment, is one of her favorites.)
Cianci, 41, spent the first part of her career as a sommelier. In 2017, wanting to leave the hospitality industry for something that allowed her to spend more time at home, she and her husband bought their facility as part of a franchise chain called The Little Gym. Its slogan: “Serious fun.”
They got what generations of franchise owners have gotten out of similar deals, with brands such as McDonald’s or Jiffy Lube: a known brand name and detailed business plans in exchange for an initial fee and a cut of the revenue.
For Cianci, it was more than just a business.
“I really love it,” said Cianci, a mother of three who studied dance. “I love my students, and I love that it lets me make a difference.”
In the past year and a half, since The Little Gym was acquired by a private equitybacked firm called Unleashed Brands, her work has felt far less idyllic.
According to legal filings, internal documents and interviews with more than a half-dozen other franchisees — most of whom requested anonymity — Unleashed began to demand higher fees and institute more stringent requirements, which the independent owners thought would threaten their profits.
The day after Cianci organized her fellow franchise owners into an association to push back against the changes, the corporate office told her it was terminating her license on the grounds that she was chronically late in paying her fees. Given the timing, Cianci maintains in the legal filings that it constituted retaliation.
When she tried to salvage her business under a new name — it’s now called Teeter Tots Music n Motion — the company sued, accusing her of violating its trademarks and a noncompete clause in her franchise agreement.
The episode has plunged Cianci about $300,000 into debt and enmeshed Unleashed in a nasty court battle not long after it acquired several new brands.
The legal fight — along with two others Unleashed has faced with franchisees at its other brands — also reveals the challenges of applying the private equity playbook to the unique world of franchises.
Private equity has notched decades of high returns for investors by following a well-worn strategy: acquire distressed or undervalued companies or real estate, increase profits and then sell them.
According to the research firm FRANdata, the number of franchise brands acquired by private equity firms and other investors rose from 52 in 2019 to 149 in 2021 and was on track to nearly equal that total in 2022. Private equity firms tout their ability to bring new ideas, technologies and efficiencies, and franchises, financially weakened by the pandemic, appeared ripe for those kinds of changes.
Unlike, say, factory workers, who can be laid off at will, franchisees are supposed to be protected by legal documents that prescribe a certain business model for years at a time.
Cianci, who is now in arbitration with Unleashed Brands, has been working to change state laws to better protect franchisees who might find themselves in her position down the line.
A spokesperson for Unleashed said via email that the company’s changes have improved business across the board.