Family-offices have a certain playbook when acquiring franchise companies, which is somewhat different than legacy operators of the past. Watch here to find out Rick Ormsby’s views on how family-offices are changing restaurant financing at Unbridled Capital.
The topic for today's episode is, how has the rapid expansion of family office consolidators impacted restaurant M&A financing? Number one, the method of financing has changed. In the past, franchisees wanted to keep real estate assets. They loved real estate, its flexibility, and its longterm value, especially in the home towns where they operated. Family office-backed operators typically want to monetize real estate assets by financing through sale-leasebacks. They typically do this either simultaneous to closing on the acquisition, through the sale of a rate, or post-closing through single unit sales on the 1031 market. Number two, family office consolidators typically want higher leverage, so they can invest a smaller amount of equity into a deal. Leverage typically takes a front seat instead of interest rates, for example.
Number three, proliferation of lenders that specialize in smaller brands. As family offices look beyond the highest valued brands, we are starting to see professional money pour into lesser brands that previously did not have sophisticated capital. This is spawning several types of lender specialties within different tiers of brands, in different geographies, and in brands that have struggling performance, for example. Number four, lenders are becoming more willing to make larger loans to improve in groups based not on their operational experience, but more on their capitalization and future growth plans. Number five, consolidation is creating larger deals and more lender competition. It is also a huge vacuum for smaller M&A financings, which are largely happening at regional banks and through SBA financing. If you have any questions about financing, please feel free to reach out to us anytime. Thanks so much.