Season 1 Episode 24: Buying, Selling and Financing Franchises



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State of the Union for 2020: Buying, Selling and Financing Franchises

Welcome to The Restaurant Boiler Room, Episode 24. I'm your host, Rick Ormsby, managing director at Unbridled Capital.

Today in the Boiler Room, we are going to answer six key questions. I've answered them over the last 20 episodes or so, I think maybe in episode three, four, or five early in our series here, but I've been delivering answers to these questions at several franchise conventions at panels and presentations in front of franchisees. And it's basically an updated state of the union for buying, selling, and financing franchise companies for 2020. And as you know these questions, even though the questions are the same year to year, the answers change as our market shifts.

The Restaurant Boiler Room is a one-stop shop for multimillion dollar merger and acquisition activity and financial complexities affecting the franchise restaurant industry. We talk money, deals, valuations, and risk, delivered to the front door of franchisees, private equity firms, family offices, large investors, and franchisers on a monthly basis. Feel free to find all of our content at unbridled capital's website at

Now let's enter the Boiler Room. Okay, so here are the six key questions for today. Number one, why is restaurant M&A hot and how our franchisees benefiting? Number two, what is the near term outlook for restaurant M&A? Number three, how have financial buyers impacted restaurant M&A? Number four, how do you value restaurants? How do buyers and sellers think about that? Number five, what is the market for financing restaurants right now? And number six, what are the obstacles and financial risks to completing a sale?

Now for number one, over the last several years, as you guys know, restaurant M&A, just those of you've heard this podcast, restaurant M&A has really been propelled upward, and we've really been at or near 15 year highs on valuations across most restaurant companies for quite some time. And there's several reasons.

The first reason would be we're in our 10th consecutive year of GDP growth. We've had a couple of blips in terms of quarterly GDP, negative GDP, but over a 10 year period has been positive, which is kind of an unprecedented thing. And that's obviously driven some of the M&A activity. We've had revenue, which has been pretty robust across the industry, especially as you look historically over the last few years in the QSR side of the business. Now we have to exempt mom and pop and casual dining chains. Those two categories have taken a pretty healthy whack. But outside of those two, and then maybe a little bit of lingering pressure in the fast casual space, most QSR restaurants have been really doing pretty well. Revenue growth has been strong.

The third reason is that low interest rates have bolstered EBITDA multiples and cap rates. We've seen a low interest rate environment a long time. Obviously that's had a big propelling impact on pricing. EBITDA multiples go up as interest rates go down. It's a little more of a pay [inaudible 00:03:08] than cap rates, which follow almost lock step after about a six month delay, but both of them have a strong correlation to interest rates.

Fourth reason why restaurant M&A is hot would have to do with lack of places to invest for a good return. And this has been kind of what spurred on the introduction and the really acceleration of financial buyers in the franchise business. And I'll talk a little bit about that later. But the main reason here is, hey, look, if you're a family office or you're an investor, and you've been trying to chase yield in the stock market unsuccessfully, or you've been trying to chase commercial real estate returns, which are getting harder and harder to find, you eventually start looking at acquisitions of businesses that are maybe mispriced or have consolidation opportunity. And this is what caused the kind of acceleration of the financial buying trend in the franchise business over the last few years.

Now, franchises as another reason are pretty stable from a cashflow perspective. Now, those of you who are operators may say, "Yeah, right," but really from an outside perspective, the cashflow is fairly stable and success rates of franchises are fairly high, and they make a great blended tool in a diversified portfolio of assets for that reason.

And as a side note, we know at the moment that really we've seen a lot of pain in the retail space, but franchises haven't, at least restaurant franchises, haven't been Amazon-ed yet. So that's been a reason why the stability and success rate have been high.

Now, another reason is the aging of the franchise base. I know plenty of operators who might be, I'm 45, they might be 10 to 15 years older than me who have second generation family that just have no interest in the business. They don't want to. I mean, it's a hard business. They don't want to work in it. They don't want to take the calls at two in the morning, and it really is 24-hour, seven-day-a-week business. And so, fewer second-generation operators are emerging out of the aging franchise base. And so that's causing a natural pattern of retirement.

And then I think finally restaurant M&A has been strong because of consolidation due to some cost pressures that have entered the business, especially on the labor cost sizes as we've seen a minimum wage kind of be enacted and really start affecting operators on the coast and in some states across the country. It's pushed smaller operators, frankly, out of the business. It's too complex and it's harder to make money on a per unit basis than it's been in the past.

So certainly, Unbridled has been a key part of all of this. And I think by recent count, we're somewhere around 700 restaurants we may sell for franchisees this year and well over a thousand in the last two years. And so the trend has been not just for us, but everyone in the industry has been pretty fast and an impressive one. But the question becomes, what does the near-term outlook look like? I mean, what's going to happen in this business from an M&A standpoint in the next 12 to 24 months? And do the risks outweigh the upside?

I don't know the answer to that, but I'll tell you, I think we're entering a phase where the chance of a cataclysmic risk or shock to the system, 10 to 30% drop in valuations, it's a non-zero type of thing at this point. It's not likely to happen, but the risk of it happening is quite a bit bigger than it used to be. And for that reason, I think we all have to take pause and kind of look at what's happening from a broader perspective. It is true that over the last seven years, valuations have been booming. Most restaurant research and experts like me will say that valuations are still at or near the 15 year high. They might be slightly over the peak. There's some kind of evidence that we can point to in terms of multiples that have been reported in private sales that have shown that pricing has come down just slightly over the last three or four months, but not much.

But most of us nonetheless feel like we might be slightly past the peak, but near it. The near term outlook looks murky. I think if you're listening, you might agree. I mean, we're talking about trade wars and threats of recession in 2020 and kind of radical political viewpoints all across the spectrum. And in several of the candidates out there are proposing, I would just say, shocking tax type proposals that are going to have a big negative impact on our business. You just see trade war, competition. You just see all kinds of negative murky things out there that don't make you feel too good I think. And there's a little bit of macro economic uncertainty as well. And then as we move into the business itself, don't we see a little bit of softening sales and EBITDA trends. And of course those start to affect valuations.

Now in the last couple of episodes, I've talked a little bit about TDn2K's research, Black Box Intelligence research. They do research on restaurant sales and transactions on a comp basis. And for the rolling three months, I think it's a June, July, and August over last year, sales across the industry are negative 0.56 on a comp basis, but traffic is a negative 3.7%. And that's a pretty shocking number, right? So operators are raising prices. The impact of third-party delivery is seen in the same store sales number, but in the traffic number, you're losing traffic.

Less people are coming to dine in most restaurants across the country. And a lot of it's because of overdevelopment. Some of it's because of increasing competition from grocery stores and convenience stores. Other reasons could be that we have kind of a mature economy that's trying to maybe tuck their shirt into their belt a little bit and save a little bit more than they were doing in the past. There is a huge correlation between gas prices and eating out because most of America has $10 to $15 in their pocket. And if they've spent a little more in gas, they don't spend it at fast food establishments.

Now, the third question that I was going to answer today is, is how have financial buyers impacted restaurant M&A? I'd like to take you on a little bit of a timeline. It's kind of an interesting walk in the past. Back in the 70s and 80s, most of these tier one franchise brands were formed with smaller and mid-sized first-generation franchisees, right? I mean, picture just the small mom and pop in middle America with two units. They operated a family business and they did it successfully with their hands and their hard work.

You started seeing these mom and pops retire for whatever reason or get divorced or whatever happens that might cause them to sell, or maybe the market back in some of those years was strong. And nearby franchisees were the ones that typically acquire their restaurants when they were ready to sell. And so the surrounding two and three and four unit franchisee bought the one and two unit franchisee, and that happened two or three times. And next thing you know, you've kind of got a bunch. You've got more 10 and 15 unit operators that have kind of made their way throughout many of these franchise brands. And they're mostly independently owned and they might be second generation by the 1990s.

Once you get into the early 2000s, you start seeing kind of the advent of PE firms into the franchise space. In the Yum space, particularly you saw MPC, 1200 Pizza Huts more or less. They started off with a private equity sponsorship. And then KMAC, which is a Taco Bell franchisee at Arkansas, has gone through three private equity firms. They're one of the early ones too. But you started seeing a few of them. But when I got into this industry in the early 2000s, right around 2000, a little bit thereafter, it was still relatively rare to hear of a financial buyer coming in to own and operate a franchise business.

We accelerate a little bit into 2007 through 2011, and pain hits, of course. Banks forced consolidation, bankruptcies, overbuilding. Franchisors aren't getting paid the royalties. We're in a big recession. And some of the consolidation that happens then starts to kind of bring the trend forward with banks and franchisors looking for maybe more well-capitalized, larger operators to come in, who could be more stable or could take down a bigger deal when there wasn't as much capital in the market, especially debt capital to finance the acquisitions.

In 2012, we start seeing the turnaround. 2015 hits and we see several landmark family office transactions, some early ones with some Ivy League trained guys that jump into the franchise space and buy some assets and start to consolidate and acquire. And it starts to become a thing because they do really well, and several of these groups start really doing well and others follow. 2016, 17 and 18 has just showed a huge explosion of family office investors into the space. Along this time you start seeing franchisors souring a little bit on private equity because private equity is kind of has fiduciary responsibilities and tight timelines on how long they can hold their investments. Most of them want to hold them five to seven years and then sell them.

And most franchisors don't want a flipping of their system. And because of that, they liked the message that family office brings, which is basically throw some money in a bucket from a wealthy family and invest it with kind of an unlimited time horizon. And the only fiduciary responsibility is to yourself, not to a bunch of shareholders who are expecting returns within a certain parameter. So private equity starts to lose its focus a little bit. With franchisees now with franchisors, it's booming, but with franchisees. And then, as you look at some of the franchise times lists of the hundred top operators, very few hundred unit operators on that list are independent anymore. Most of them are backed by a financial sponsor and you just continue to see the young MBA effect upon several brands like Taco Bell and Wendy's and Dunkin and Burger King, and a lot of these other brands that just have young folks backed by family offices and private investors that want to come in and buy large packages of assets and operate them.

So there are a couple of things that have come out of this, and I think it might be worthy of sharing about the common traits you see in some of these buyers and some of these private equity and family office buyers, they pay really high prices, right? That's what they're known to do. But in addition to that, they're loaded with capital, but they're stingy and don't want to spend it. It's kind of like the old adage of a bank only wants to lend money to people who don't need money, right? If you need money, they don't want to lend it to you. So the private equity firms and family offices are going to look to keep as much of their capital in their pockets as possible. They'll be stingy. And what that means specifically is they like to monetize real estate when they acquire assets. They like wherever they can to borrow as much money as possible and put down as little equity as possible.

Some of the other traits are, they're not used to franchisors in many cases when they enter a system. And a franchisor calls the shots, right? But most of these buyers of these businesses are just as accustomed to buying a manufacturing business in Canada or wherever it might be where they don't have a franchisor looking over their shoulders. So that's something that takes some adjustment that some of the private equity firms are used to signing asset purchase agreements at closing, which is, again, something that we do not see and is impossible in the franchise space in most cases because of the right of first refusal a franchisor has.

Some of these firms prefer stock deals when asset deals are more the way to go in the franchise business by custom. And then of course with high prices come difficult transactions. So there's heavy diligence costs, quality of earnings studies. You really have to know where every piece of your financials are coming from, every line item, every journal entry over the last five years, because these big firms will hire CPA firms and other audit firms to look through the financials and to give them a quality of earnings study, showing the weakness and any inconsistencies in the data. And that has to be defendable. So, the diligence process is difficult. The contracts are difficult. And I would say kind of lastly, the financial buyers don't really have a firm grasp of how much of a people business the franchise space is. And for that reason, they kind of struggle in that regard and, and we're, we're constantly having to teach them that it's a people business. This business is more than almost any other business.

Of course, Unbridled has sold almost 400 restaurants across 15 transactions to financial buyers over the past few years. I'm just looking at a list here. A couple of family offices and a couple of private equity groups, but mostly family offices who are consolidating across four or five brands. I mean, we'll do business in probably eight or nine brands this year. But most of these guys that we deal with have been in KFC, Taco Bell, Pizza Hut, and several of the other tier one brands outside of the Yum system.

The next question that I wanted to kind of talk about is, how do you value businesses between buyers and sellers? And you look at an enterprise value of a franchise business in terms of business valuation and real estate value. Backing up a little bit, EBITDA is clearly the main factor in driving the value of a business. Your rolling 13, most recent 13 period trailing EBITDA sales and EBITDA figures. But it's not quite that easy because there's maybe 20 factors that affect valuation. Some of them are geography. Where are you? If you're in the Pacific Northwest, your valuation is going to be less than if you're in Georgia or Texas or Virginia and North Carolina. What are your AUVs? If you've got a package of stores, 35 stores in West Virginia doing $800,000 at AUVs, that's not going to trade at the same EBITDA multiple as 35 stores in Oklahoma that have an AUV of 1,400,000.

The number of units matters. The larger the deal, the greater opportunity to bring in outside buyers and gain the interest of these family offices that are so ripe on consolidation. The condition of the assets is a big deal. And then management team affects valuation too. Largely financial buyers need a management team in place. And so if there's not a management team in place that can go along with the transaction kind of below the ownership of the sellers, then that is going to attract less offers and overall lower valuation.

Now that being said, EBITDA is king. And if I go through a quick example of a store doing 1,200,000 in sales, average pre-G&A EBITDA margins around 20%, and let's say a 5% lease. So that's 15% pre-G&A EBITDA margins, which on this example of $1,200,000 in sales would be $180,000. And then if you kind of assume an implied G&A percentage of three and a half percent, which may be $42,000, you get to a post-G&A EBITDA number of $138,000 or so. And if you apply a multiple whatever multiple that is to that post-G&A EBITDA number, you kind of come up with a pre CapEx value, and then you kind of have, depending on the brand, you have to look at kind of near term future CapEx, and discount it to present value. There's different kind of ways to do that and different ways to think about that across many different brands. But once you subtract that, if there is any off of the pre-CapEx value, you get a final business value range.

Now I realized by saying all that you're probably lost. And if you didn't grab a pen and I said it really quickly, so I mean, call or find me. Track us down at Unbridled. We're glad to talk you through business valuations any time. And then on the real estate side, I'm sure you're getting a call from every real estate broker all the time. They are quite aggressive, but I'll tell you it's a much simpler kind of model.

There are factors that affect your real estate valuation number of units, method of sale. In other words, whether you're selling in a group or a bulk to a real estate investment trust, or individually on the 1031 market, when you do that to, let's just say an investor out of California that sold a warehouse building and is looking to exchange the proceeds without paying taxes. And therefore is looking for a real estate investment elsewhere. That person is obviously willing to pay a better price, but you've typically got higher brokerage fees and the timing of the sale and the certainty of the sale may be a little less. And again, most of those buyers only want one piece of property as opposed to a REIT, which would buy lots of properties, but buy them at a less favorable cap rate, but have less interest rate risk, and probably greater quickness in completing the sale.

You have tenant strength, which is a big deal on real estate values, right? Like all things equal. If I'm selling my real estate and the tenant is a five unit franchisee, or if I'm selling my real estate and the tenant's a thousand unit franchisee, well, a buyer is going to give you a better price for the lease that's guaranteed by the thousand unit franchisee. Geography matters. Rent coverage ratios are a big deal for buyers. We like to see them at 2.0 or greater. And then the AUVs and the business economics that are sitting on top of the real estate are important to determining the cap rate. But essentially you take your rolling 13 sales, you multiply it by an implied rent that you're going to be selling to a perspective buyer. And then you divide it by the cap rate.

Cap rates now, or you've seen them for something as crazy as Walmart, you're seeing them around 4%, but most of the ones in the franchise business, especially in ones where the franchisor does not guarantee the lease payments, most of them are going to be somewhere between the low fives to mid five all the way up to in a bulk portfolio sale of a kind of a non attractive brand, might be above seven caps. So there's a big swing, but it's essentially sales times implied rent divided by cap rate, and you get a range for the real estate value. And that plus the business value equals your enterprise value.

Now, it's pretty cool to think about how much valuations have changed over the last 10 to 15 years and even less than that. If you think back to 2012, and we just kind of take a representative of EBITDA number of 4.75 times, which might be kind of indicative of what it was back then broadly across the industry. And you take today at a 6.25 times EBITDA, or maybe let's just say 6.5 times EBITDA, and we'll do the math real quick. You come up with an increase in valuation of 36.8%. Now that assumes that your business financials haven't changed at all during that period. And we might say over a seven-year period, 36.8% or 30 to 40% increase in value of a business just based on the multiple itself is pretty good, right? So if you operate the exact same business, your business is worth 36, 35, 30, 38, 40% more than it was before. But when you layer on the business fundamentals on top of it, it has a huge, multiplying effect.

I was at a KFC conference last week, and for them, their average AUV might've been around 950,000 in 2012. It might be 1,050,000 now. Gone up a hundred thousand. They've had five years of same-store sales growth, right? And you also have in that system maybe 200 to 250 basis points of margin improvement across the last five years. So the profits are higher. Most of the system has been remodeled to their new American showman image. So the remodeling expenses are way lower. And then when you roll those three things through evaluation model and you apply a higher EBITDA multiple to the outcome, it has an incredible effect. I mean, it is not unreasonable to think that 200 to 300% increases in many people's valuations since 2012 have occurred. I mean, it's incredible. Over a seven year period, you'd be tickled to death at a 250% increase in the value of your franchise business because it's going to crush the stock market with admittedly much less risk.

And the other thing I'd say is there's clearly a delineation of how much EBITDA multiple accretion there's been across different portfolios of stores. If you have one to two units of something, you're probably at least a full turn, if not a turn and a half less than EBITDA than somebody who has a big business. And then somebody has a mid-sized business that might be five to 15 units might be somewhere in between.

Okay. Our fifth topic for today is update on restaurant financing. And this has had some changes. Most franchisees have more options for financing their business than they did several years ago. I mean, 2012 was terrible and it started getting much, much better, in 2014 and 15 and 16 and 17. We have seen though a little bit of pressure in the lending space in the last 12 months or so. And if you talk to franchise lenders who are in this business all day, every day, many of them are kind of quietly sour on franchise loans. They'll tell you that we've had pressure. We have a lot of debt in the space. We've put out a lot of credit and some of it's not performing well and breaking covenants because we've had overdevelopment of restaurants. And because we've had kind of some pretty poor traffic patterns over the last year or so, a little less than year, but the big issue is the labor pressures that have just continuously been flowing through the business.

And you might be operating a 50 unit, whatever business down in Georgia. And you don't feel the pressures quite like you would in, let's say, Arizona, which is going through tons of minimum wage increases. But the point is that many restaurant franchise lenders across the country look at an entire portfolio across the country. When their risk analysts kind of analyze these things, they don't just look at Georgia and just Georgia for Arby's. They're looking at kind of a broader picture.

So those are kind of some of the items that we're hearing. We're hearing things like from some of the bigger banks that are talking about maybe lease adjusted leverage coming down a quarter to a half turn over the next six to 12 months. And I'm kind of hearing as well several lenders say that the risk reward profile in this business has kind of been flipped upside down. It's just not worth the risk to invest with these minimum wage increases and development obligations. And so it's resulted in several recent kind of banks closing the doors. Two that I can think of, I won't name them, have kind of closed their doors or have sold in the last kind of 90 to 120 days. And several other larger franchise lenders are quietly turning off the spigot to new loans.

It's not like a broad-based problem yet, because if we have 25 lenders active in the space and you have five or six of them that are sour on it now, you still have 18 or 19 or 20 that aren't, but it's something to watch, I think. And I think the murkiness I talked about earlier about the future of the M&A space in the near term is largely dependent on restaurant financing. If the spigot gets slowed down quite a bit, buyers can't have access to capital or as much capital. And then what happens? The multiples come down and the amount of buyers starts to go away a little bit.

Now in terms of rates, in terms on loans, I mean, we're still looking at Libor plus 200 to 350 basis points. I mean, the rates are great. The problem is, will the lender give you a loan, especially if your brand is struggling with comps? If you're one of the many brands right now that has really bad sales and transactions counts and comps over the last couple of years, you're having a hard time getting your brand financed. Your franchisees are really struggling, and they may be looking at the only way to get financing, either through a mix-match of build a suit leases and equipment loans, or maybe small local banks or regional banks.

Amortizations on loans are still between 10 and up to 12 years for operations and 20 up to 25 years for real estate. Terms are around five to seven years. And you can certainly fix, do swaps and fix your rates. Lease adjusted leverage is the key parameter that most lenders use to figure out how much debt they're willing to advance you, and then fixed charge coverage ratios amongst other things are kind of some of the key metrics for existing loans. And while we expect interest rates to remain flat in the near term, or maybe actually take a dip, this doesn't necessarily mean that it's going to be easier to get a cheaper loan, because again the risk reward profile in many of these folks' eyes has gotten worse, not better.

And the sixth and final topic is kind of what are the obstacles to completing a sale. And I would just say that we live in an increasingly connected world, right? We all have iPhones and our iPhones enable us to talk with our friends in Indonesia at the touch of a button. We're on Facebook and LinkedIn and Twitter and Instagram and all these different, crazy tools that are just really cool. But in the midst of this, I hope you agree with me that this is really a lonelier world than it's been before. I mean, people might be more connected, but man, they are way less connected.

I mean, I can see in my daughter and my son as they sit there next to their friends on a couch or sitting at school, and they're right next to each other and they don't talk. They're on a phone. And so finding the best buyer for your business has gotten way more difficult and more kind of focused in terms of an area of expertise than it used to be just because the people are not quite as identifiable. The buyers aren't. They're out there, but they're not as easily identifiable as they used to be because we live in a connected but unconnected world.

And these guys, and most of the financial buyers, especially are sophisticated negotiators. My goodness, they spend all day every day negotiating some kind of deal. So if you're a franchisee and you do this once, and you think you're going to be able to pick up the phone and hold your own with these guys, you're going to get smashed and crushed. And that's why my team is loaded with two CPAs, two former corporate executives, a CFA charter holder and an attorney, right? So we're really good. We pack a really good one-two punch in the trenches, both at kind of finding the right solution for someone's business, but also being in the trenches and fighting and holding our client's hands as they go through the negotiations, which can be pretty complex these days.

Asset purchase agreements and documents like these are very difficult. There's lots of contingent liability, risks, and indemnification clauses. Escrow agreements, these things that have become bigger concerns for buyers and sellers over the years. And there's just more scrutiny. Most clients that we deal with have attorneys that help them through their wills and their leases over the years, or might've helped them with a trust, but have no idea how to handle an M&A transaction, both the pacing and sequencing and pressure of it, but also the expertise of dealing with the other side's attorney who does this all day, every day. And corporate approval isn't as easy to grant. And it comes with lots more strings than it used to.

You bring a deal to corporate to approve. They don't just say yes. If the buyer is a good, well-capitalized or already growth approved buyer within the brand, they're going to say, "Yes, but if you give me 10 more units over the next five years," or "Yes, but if you advance some of your remodels," or "Yes, but if you agree to go to national menu pricing with us." So corporate is exacting their pain, what do they say, piece of flesh or whatever, as a condition of these transfers.

Real estate risks are a bigger deal because as cap rates have dropped and people are paying higher prices for real estate, the inevitable consequence of this is the real estate's got to be clean, or I'm not going to pay you this big price. So the real estate diligence is huge. And then the time to get these deals completed is way more than it ever has been. As franchisors have elongated the right of first refusal process, as due diligence has gotten longer with quality of earnings studies and greater diligence time and greater scrutiny on the purchase agreements, and confidentiality throughout a longer process and more complicated process remains the number one concern for operators who have people in the business that they don't want to flee. And they also want to protect them after many, many years of confidence.

So I just say, to tell people that the risks of selling a bit business without an advisor, I don't care who you find, are really pretty substantial. And on a $15 million transaction, just throw a number out, a good advisor should be able to get you 10 to 15% higher sale price than you could get by yourself even if you're dealing with the same buyer, because they should have the skills to be able to bring the pricing up through a broader market. They ought to be able to put forth a product in a sim or a pitch book that's been thoroughly thought out, and the numbers have been really kind of a mini Q of E done before the business goes to market. So that re-trading costs during due diligence are way lower. And that ought to be worth maybe $300,000 to $500,000 to you on a $15 million deal.

The return on your money. Let's say an advisor can get a deal close 90 to 120 days faster than you could on your own at a 7% interest rate. And it's assuming that you only have 5 million in debt on a $15 million deal, right? I mean, that's 100, 150 to $250,000 in extra interest income.

The risk mitigation costs are huge. If you make a mistake in the purchase agreements and you are hung with contingent liability risks, and let's say those small portion of it actually comes to fruition, it's an easy 100,000 to $200,000 in risk costs there. And then I think you talk about time involved. I mean, what's your time worth? Several hundred hours of time that you would avoid spending that you could run your business and be with your family if you have an advisor who takes at least a couple hundred hours of time off of your plate. And if you didn't hire an advisor, you're going to be paying your attorney and CPA more than you otherwise would. So that's got to be worth at least $50,000 $100,000 or so. And so you pretty easily on a $15 million deal get to over $3 million in total benefit that a good advisor would bring to you. And if the deal's a $1 million deal, it's probably kind of a lesser number. If it's $150 million deal, it's probably a similar percentage, but obviously a greater number as well.

So the one thing I would kind of leave here and finish this presentation to tell you is if you are a selling franchisee, okay, or someone who's considered a sale of your business, or you're a buyer, really, you need to know and you already probably know, but valuations are at or near all time highs in most brands and some brands they're not, but in most brands they are. And so you got to plan, right? You got to think about your future plan. And think the things I'd tell you is evaluate your macro economic, geopolitical tax and cost risks to your operation. Look at your succession plan and forecast two, five, 10 and 20 years down the road and know the value of your business now. Don't just hear some anecdotal number or calculation. Instead know the value of your business now.

If you are a seller inside of five years, now is likely the time to sell. Because again, we are probably slightly over the crest of the wave. The future looks a little murky and the risks of a near term cataclysmic shock to the system are increasing. Although they aren't incredibly large, they're still increasing. The future does not look like it will be, in my view and I could be wrong, it does not look like it's going to be much better than it is now. And it could be much worse.

If though you're planning to operate, whether you're a buyer or seller for the next seven to 10 years or more, then that's great. You'll hit another up and down cycle during that time. I just tell you to prepare for the possibility of softening sales and higher wage costs. Many people in the Southeast and Midwest that are in low wage states are grossly underestimating how bad wage increases affect P&Ls. And so be cautious and be careful. Don't just hear about other people's problems and blow them off. Listen.

The other thing I'd say is if you're going to operate, raise up the next generation in your business, it's so important. Forecast your capital needs. Lock in any long-term financing you haven't done already. And then continue to operate well. Whether or not we're in a good or bad times, I guess I would just say that the best operators are the ones that continue to focus on their business day to day. They go to their stores. They create great customer experience and they have a great bench and an awesome team around them. And then you're going to succeed no matter what scenario you're in or what the externalities of this world bring you.

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