Surging KFC Valuations

Video

04.02.2019

As many of us in the KFC system like to say, "I have chicken in my veins." I started my restaurant career working for KFC Corporate. For over 15 years, I've staked my livelihood on helping KFC franchisees in the sale or financing of their businesses. I'm proud to tell you that KFC franchises are now selling at an all time high. Valuations are surging and many KFC franchisees don't realize their companies are worth 30% to 40% more than just a few years ago. I think we are in the seventh inning of a nine inning ballgame. These high prices won't last forever. And I believe now is the time to sell your KFCs if you plan to do so in the next five to 10 years.

Let me give you some valuable points to consider. First, KFC pricing is exceeding 5.5 times EBITDA after 3.5% G&A and near term remodeling discounts. Partial year ASAP remodels are receiving pro forma sales increases in our models. Number two, for premium KFC businesses with 20 units or more and above average PRAs, pricing is six times EBITDA. Three, real estate is valued at 8% implied rents and 6.5% to 7% cap rates depending on whether real estate is sold to the buyer of the business, to real estate investment trust or on the 1031 market.

How are we getting such high valuations? There are a few reasons. The first would be prospecting and sales. I've personally spent 12 months prospecting investors, family offices and operators for the KFC brand in order to drive higher prices since existing franchisees generally won't pay high prices. Second is recent success of the brand. There's been an impressive turnaround and it's attracting new entrants into the KFC system. Third is a premium being paid for larger deals. 15 to 20 unit and higher KFC deals are getting premium pricing and are viewed as beachhead investments into the system for outside investors and fourth, reasonable relative valuations. KFC valuations are still lower than Taco Bell, Dunkin Donuts, Wendy's, Panera and Burger King. Investment groups see KFC as a good value.

All of this is great news with a forewarning, the deals are becoming much more complex. To get the highest price, you'll need help and a bunch of it. Our KFC clients are getting millions of dollars of extra value from hiring us, seeing much higher prices than they can achieve on their own, even when dealing with the same buyer. Most franchisees underestimate the amount of time it takes to sell a business and the high hidden fees and costs. Unbridled's involvement saves bundles of time and money. It's one of the best return on investment decisions you'll ever make.

Ask to see the sophistication of our financial modeling, the comprehensiveness of our due diligence process or the analytical and legal skills of our staff. There's a sizable difference between Unbridled and others, and this translates to higher prices and better deal terms. If you would be interested in a quiet process to explore a potential sale, but don't want to loud blast to the world, we'd love to talk with you. I bet you didn't know we were involved in a mountain of KFC business currently, and that is because most of our deal flow does not go to the open market anymore. There's no sense in risking confidentiality when most KFC franchisees won't pay current prices.

Finally, we specialize in joining franchisees with private equity or family office money. This is becoming a growing service for operators wanting to expand. Ask us to tell you about it. At Unbridled Capital, we currently have over 150 million in KFC restaurants for sale, and I expect this number to grow quickly. We also have 600 restaurants for sale across different brands. Many of these deals are in the 10 to 50 unit range. We are quickly and quietly becoming one of the largest restaurant franchise investment banking firms in the country, and it is a blessing. Please feel free to reach out any time. We'd be happy to talk valuations, timing and expectations in the sale or financing of your KFC business.