ESG Advisory | Franchise Acquisition Due Diligence and Risk Response

The client who requested ESG advisory was a private equity fund that was pursuing the acquisition of a food service franchise company.

Although the target company was financially stable, social reputation risks had begun to emerge after controversies surrounding the working environment and the headquarters' policies at some franchise stores became known.

Conflicts with franchisees, discussions concerning the working environment, and internal control issues were all raised, and concerns arose that such issues could go beyond a simple dispute and affect the company's image and operational reliability.

Accordingly, the client requested ESG due diligence and response advisory from a corporate legal advisory attorney in order to proactively review risk factors in the social and governance areas that could be directly linked to brand value after the acquisition, and to reflect these factors in the contract and the acquisition structure.

The corporate legal advisory attorney reviewed the franchise store operating policies and internal regulations and examined the overall working environment.

The attorney analyzed the treatment of part-time workers and the occupational safety management system, and reviewed the related reports and complaint records.

In addition, the attorney assessed compliance with the Monopoly Regulation and Fair Trade Act and with occupational safety regulations in order to identify potential risks.

By including social and governance related risks in the representations and warranties clauses, the firm managed the risks at the contract stage.

As a condition precedent, the firm required submission of a plan to improve franchise store operations, thereby establishing a practical control mechanism.

In addition, the firm designed an ESG compliance undertaking and a reporting system to be implemented after closing, thereby securing a basis for continuous monitoring.

By establishing an ESG inspection protocol and a training system for the franchise stores, the firm strengthened the on-site operational management standards.

The firm proposed improvements to the working environment and the formation of a dedicated organization for occupational safety management, thereby enhancing the capacity to respond to risks.

In addition, the firm established an ESG management report and a strategy for disclosing social responsibility risks, thereby supporting a sustainable operational system.

As in this case, when acquiring a company such as a food service franchise that involves numerous stakeholders, ESG-related potential risks can affect corporate value and reputation both before and after the transaction.

It is important to identify and manage in advance the problems that may arise in various areas such as franchise store operations, the working environment, occupational safety, and social reputation.

In such circumstances, the assistance of a corporate legal advisory attorney is essential for designing risk management mechanisms tailored to the acquisition contract and structure, and for preparing a sustainable management system by establishing an ESG compliance protocol and reporting system after closing.

Drawing on its experience providing ESG advisory across numerous industries and company sizes, our firm provides integrated advisory services spanning due diligence, contracts, and post-transaction management.

The firm also designs tailored response strategies even in complex stakeholder situations, and provides practicable ESG solutions that reflect domestic and international regulations and industry best practices.

If you need legal assistance in a situation similar to that of the client in the case above, please request assistance through 🔗Legal Consultation Booking.