Current State of the Pizza Hut M&A and Financing Market – Summer 2018

By Rick Ormsby
Managing Director
[email protected]

I was recently asked by the Pizza Hut franchise leadership to give Unbridled’s perspectives of the current M&A and financing markets as of Summer 2018. Our thoughts come from a thick book of current Pizza Hut M&A assignments, including almost 10 existing or recent sell-side M&A transactions representing over 400 restaurants.

Below please find some overall comments for your consideration:

  1. Generally speaking, the lending market is very strong locally, regionally and nationally for franchises.
  2. Interest rates are increasing, which is creating a slow uptick in cap rates and higher borrowing costs.
  3. As interest rates increase, EBITDA multiples also slowly move downward because of higher interest payments on loans.
  4. The lending market is still cautious on the Pizza Hut brand. Same store sales have flattened and are trending up slightly, which is helping.
  5. Unless you had huge amounts of equity in your Pizza Hut business, it was very difficult to finance or recap your franchise in the past two years. It is still difficult.
  6. New buyers entering the market have investment funds, and lenders are generally eager to lend to them because of it – even in spite of lackluster Pizza Hut performance and many remodeling projects.
  7. Corporate has been selling smaller packages to former employees – these folks are undercapitalized, and these deals are largely financed by SBA or with a Yum-guarantee on a portion of the financing.
  8. Last fall, Unbridled began a campaign to bring new franchisees and buyers into the Pizza Hut system. We have sent over a dozen qualified, prospective franchisees to Corporate for approval in the past 6 or so months.
  9. Many of these buyers now have deals in-hand. There is still a very fluid buyer/seller market for Pizza Hut assets. Unbridled is beginning to do more outside prospecting again in the New York area to find more buyers for future deals.
  10. We expect several legacy Pizza Hut franchisees to sell large organizations in the next 2-3 years, likely as remodeling obligations become due or because of health or management issues.
  11. Remodeling is a big issue for lenders, existing franchisees and outside buyers. Small-town dine-in assets are difficult to finance, and buyers outside the system are not generally paying high prices for them.
  12. EBITDA multiples are ranging from 5.0 – 6.0X depending on the size, scale, asset strength and sales volume of the packages. Cap rates and implied rent factors are still favorable for good dine-in assets.
  13. Like all restaurant concepts, there are massive struggles on the West Coast and in the Northeast for Pizza Hut. There are few buyers for stores in these areas.

If you have any questions or would like to discuss the value and financing capability of a Pizza Hut franchise, please feel free to reach out anytime to Rick Ormsby, Managing Director, at 502-252-6422 and [email protected]

Rick Ormsby
Managing Director
[email protected]