International Due Diligence in Cross-Border Franchise Transactions

September 28, 2017

Author(s): Pierce Haesung Han, Kendal H. Tyre

Originally published in Franchise Law Journal, Vol. 37, No. 1, Summer 2017

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When a franchise system expands internationally, due diligence that includes a thorough investigation of the business environment of the proposed target market and its legal landscape will provide clues as to the likely success of the expansion. Preliminary investigation will also shape the due diligence that must be conducted on the proposed local master franchisee, area developer, or joint venture partner. Due diligence of the local business requirements, the local legal framework, and the local partner is particularly important in the international context because the stakes are often higher. Compared to a typical domestic franchise transaction in the United States, the amount invested is generally higher, the time to recoup the investment is longer, the pool of viable candidates is smaller, and the available resources to conduct any due diligence are often scarce. Regardless of these challenges, due diligence remains an essential and invaluable component of any cross-border transaction and the key considerations of that exercise are addressed here.

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