Season 3 Episode 1: Franchise M&A and 2021



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Welcome to The Restaurant Boiler Room, season three, episode one. I'm your host, Rick Ormsby, Managing Director at Unbridled Capital. Today in the Boiler Room, we're going to be given some post-election thoughts on franchise M&A, and what we think is going to happen in 2021. The Restaurant Boiler Room is a one-stop-shop for multimillion dollar merger and acquisition activity in 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 franchisors on a monthly basis. Please feel free to find our content at Unbridled Capital's website at

Now, let's enter the Boiler Room. So, the question I've been trying to get the answer to is, what do franchisees lenders and investors think about the franchise space in 2021? We'll talk a little bit about my views on what the political fallout and change will mean to the industry potentially in the short term and longer term. But, I started asking questions of first, lenders, then private equity folks and family offices, and then also franchisees to get their views. The first is lenders.

I think a lot of people, if you read the national news, are going to say that the restaurant business obviously has been struggling. Right? Same-store sales as a whole have been down significantly, I think, almost double digits for the year for 2020. So, within the pockets of the restaurant industry, we have some really poor performing dine-in establishments in some of the blue states where we have stricter COVID controls in place, but sub segment of the marketplace has really gone differently in many cases, and particularly for the QSR brands, you see just this incredible resiliency.

One person put it to me that they said that they felt like our industry, QSR industry is nuclear proof because it made it through the Great Recession and now it's made it through COVID with increasing sales and profits. I thought that was a funny characterization, but lenders were the first people I reached out to in the last couple of weeks, I've had several dialogues and discussions. It's amazing lenders, especially for the QSR side of the business are surprisingly bullish more so than I thought they would be for 2021. I expected as you've heard these podcasts over the last few months. By the way, check out some of the ones in the middle of the year, last year. So in season two, you might get a hoot out of them because I make a ton of predictions.

I mean, I don't know how I got so crazy to make all these predictions back in June and July, but I listened to one of the old podcasts and tracked some of the predictions I made at that time. Like 90% of them were spot on. So, maybe that gives you some confidence as you listen to this, that we know what we were talking about, but I was talking with some lenders and then looking back, we were expecting mid last year to late last year that we were going to see lenders ratchet down the least adjusted leverage, that it was going to be more difficult to get good terms on loans, even in a low interest rate environment. But what I'm hearing at the start of 2021 is, in limited instances, of course, but what I've heard is that, quite the opposite is true.

Several lenders are telling me that they're aggressive and they want to be ... their companies and their franchise arms are really trying to deploy more capital this winter and this spring into the franchise space. So I think they're migrating a little bit, it's a consistent theme for a wait and see right now in casual dining and fast casual, some folks that I've heard on the lending side are telling me they think that the independence will come back and they'll come back in a pretty meaningful way, meaning independent restaurants that aren't franchise later this year when the COVID vaccine is spread out across the country.

So I thought that was interesting too, but largely speaking the message is the QSR lending market should be strong, and in many cases might be as strong or stronger than it wasn't on a pre COVID basis. So, keep your eye out for that. My next group was investors, and specifically a private equity and family office groups that don't have restaurant or franchise assets right now. I'm getting a lot of calls from these types of folks, and it's the same kind of story. I think maybe a lot of them are a little bit late to the party because this thinking in terms of investing in the franchise space is something that really started in a robust fashion back in 2014, 15 and 16, you had a second wave of guys and gals in firms that got into the business in 2017 and 18 and even 19.

So I think that trend is probably going to continue even for those who come into the party and are a little bit late to the party, because I think they are seeing this business as ... a question mark would be, "How do I get any meaningful investment in the U.S. consumer, if I'm not going to buy Amazon or one of these online companies?" Right? I mean, you have a limited opportunities. You have food, you have a couple of other areas, but if you want to play the U.S. kind of retail consumer stocks or investments, franchise restaurants is probably one of the more stable areas if you take tech out of it, where the revenues and profits have been strong.

So, we keep hearing this from people who have maybe a bigger mindset of investing in a basket of 30 or 40 different industries and types of investments, and it's interesting that I think that the commentary is that we want to be more meaningfully involved in looking at the space for 2021 because of the way it has performed throughout the COVID crisis. So, I think you'll see the family office and private equity guys and investors talk really big, they typically want really big deals. As you may know, as you're listening to this, most of the people in this industry who are franchises or small franchises, there are a lots, but once you start getting like above, let's call it $20 million, $30 million in EBITDA, you start narrowing in this industry to a sizeable amount of firms and companies and franchisees of that grouping.

But largely the industry is still fragmented and is really centered around the 20 to 30 to 40 unit operator. The reason why that has become that way over the years, just as to go on a tangent a little bit, is because the smaller franchisee, especially, can't handle all of the complexities of managing an increasingly difficult business, right? Just think if you're a two or three unit franchisee, or a five unit franchisee, trying to deal with all the government regulations and all the COVID restrictions and closed dining rooms and all of the new mandates or food safety and everything that's coming in place and try to run your business and feed your family and make the bills paid and all these other things, it's very difficult to do if you're a small franchisee.

So, smaller franchisees have been selling to medium-sized franchisees and the sweet spot, I think, continues to be these mid-sized franchisees who are professional enough to have the resources around them to really operate well, but they're not too large that they don't know the hometowns that they operate in. Right? You know how I feel about that. But I think you will see a lot of private equity and family office groups try to continue to get into brands in 2021. The issue is going to be, again, that the brand of the deal sizes will be too small for them. So, will we see migration, a continued migration of these professional investors down into the smaller side of franchising? Will they jump potentially into distressed deals that are largely bad credits with lenders who want to, maybe, dump an investment in 200 casual dining restaurants that didn't perform anymore?

Maybe you'll see the private investors go into small franchise or brands more aggressively. It's also possible that we can see them moving from tier one franchise brands into tier two and tier three franchise brands that was starting a little bit in 2019 and 20, i.e., someone saying, "Instead of going to make an offer on a really expensive 50 unit Taco Bell business, I'm going to go look at being the biggest franchisee in a brand that only has 500 units across the country, where I can buy in at a little more reasonable rate, and I have smaller, more conservative way to grow, but I can do it with a little bit less competition."

I think we're going to see though that the optimism from the franchise community is going from the investor community ... pardon me, is going to be there and may be increasing in 2021, depending on what continues to happen as we play the year out. So those two comments were positive. On the franchisee side, it's interesting. I see a couple of different phenomenons happening. Right after the election results, we saw a lot of people call us, franchisees, a lot of first-generation franchisees who operate and own the entirety of their own businesses calling and saying, "Rick, I'm bridled, I think I'm scared about what the future of minimum wage and the future of taxation could be for me, relative to my net proceeds of selling a company now, or in the next six months, as opposed to holding it and selling it in five years."

So I think a lot of people, especially in some of the low wage states to just focus for a moment, an area that has a lot of low minimum wages is going to be the Southeastern United States, right? So a lot of franchisees in those areas are very concerned, especially with the Georgia runoff election going, both seats going Democrat, that now we're going to see some pretty sweeping minimum wage increase mandates, and a lot of those franchisees in those territories are at nine and $10 an hour average wage, right? So, they stand up to probably have a longer road to keep in that profitability when those changes are enacted, whenever they may be, taxes are another issue, obviously, too.

So you're starting to see the national rhetoric a little bit already about raising the corporate income tax. Obviously, Biden plan talks about raising the top income tax rate, increasing the FICA and FUTA tax a little bit. I believe it is, right, the Medicare tax a little bit for a higher percentage of the income of earners. So some of these things are obviously detriments to people who are going to look not just at the gross proceeds of selling their business, but clearly the net proceeds after paying all the taxes and distributions and everything there. So, I think that's going to be something to watch.

Some other franchisees on the other hand are really bullish and with good reason, they're sitting on businesses that are up 25 or 30% in revenues, and profitability is up just as much or more. They've been a beneficiary in many cases of some of the change in the way we eat in a COVID world, and they are very bullish. Some are saying, "We're going to operate this thing for the next 10 years." Others might be saying ... so I've heard a lot of that. I've heard a lot of other people say, "Well, maybe now's the time to sell my company because the valuation is so much higher than it was just because of this record breaking year. Here I was operating a business that was basically a plus or minus 2% business and sales and profits basically year after year after year. Right?"

That's why you buy into the franchise business as a coupon-clipping type of business with kind of low growth trajectories, but stable, we hope cash flows and not much new development over time. It just becomes a nice stable business, but all of a sudden these franchisees are looking at their stable business over the last 20 years, and they see this huge uptick in their performance. I think those are the wise franchisees who were saying to themselves while we may keep a lot of this new revenue that's moved over from casual diners and independence and people who don't want to eat in dining rooms right now, we probably won't keep all of it, and we probably won't keep all of it forever."

So I really will acknowledge the fact that we're probably nearing a plateau in the next couple of months, certainly for the 12 months that probably starts rolling over in April or May, at which point in 2020 sales started coming back up, there are some unrealistic franchisees too, and those are the ones ... it's like anybody in life, right? If you pick a 100 people on the streets, you're going to find 20 people who are unreasonable. Right? They're just unreasonable. Those folks are like, "Gosh, my sales and profits are so big." I think we're going to keep all of this for the future. Right?

So, those folks are seeing the stars of great performance and think that it'll stay. So I think I would characterize the franchisee mindset as being slightly mixed. So slightly mixed depending on where they operate, the size of their businesses, their view on taxes and minimum wage increases, and their view on how strong their business is now and how much longer it will stay that strong. Clearly a lot of people feel like the halo from this segment will continue not only through 2021, but 2022. Someone I really respect, who's a franchisee, a big franchisee, just told me recently that he thinks on a two year stack from 2020, and then looking forward to 2022, he sees meaningful growth by year in 2022, and increasing same store-sales year over year for 2021, over 2020.

That's pretty bullish, right? If you are looking at minimum wage increases, let's hope that any federal minimum wage increase, if implemented, will be graduated, like it's been in places like Florida where state income or state minimum wage has been enacted, but it's been done in a plan for way over, I think between now and 2026, in that kind of increasing minimum wage environment, that is planful, you should think that most strong franchise brands should be able to gradually, over time, build up their pricing, to be able to offset a lot of the cost of increased minimum wage.

Now, the outcome for all consumers is going to be that that Taco doesn't cost a dollar or 89 anymore, it costs $3, and the burger doesn't cost 299, it costs 399, right? So we all have to deal with increasing costs if we're going to have increasing wage for the employees, because I can tell you, our margins are good. The franchise business operating a 15% margin business is a blessing in this space. There's just not a lot of margin. You're counting pennies and hoping for big volumes. That's the overarching comment that I've heard in the last several weeks from talking with franchisees and friends and lenders and investors.

I'll just go back to again and reiterate that the interesting point from the investment community is, we may be willing to take lower returns and pay higher prices for these assets, just because, again, we want some exposure to the U.S. retail consumer, and other than buying an Amazon, there ain't a whole lot of options for me. Food is something that hasn't been Amazon and it's shown itself through COVID to be pretty insulated from big negative changes. So, I think we'll see that play out in 2021.

Okay. So, my general outlook is going to be a positive one too. I think for 2021, my hope is that we're going to continue to see some really robust sales and profits throughout the first quarter. I'm hearing some anecdotal evidence since January 1st and several of the brands that we know really, really well, that sales and profits are up a lot. Once this second round of stimulus checks gets into the hands of the average U.S. consumer, I think you're going to see what we saw last summer, which is a pretty strong same-store sales push, dining rooms will still be close in many cases at QSR. So I think you're going to see that translate to a pretty high dollar profit increase in each one of these franchisees businesses.

So I think you're going to see a great Q1, now Q2 is going to be interesting because it'll probably be really strong as well. Right? I mean, again, like I said earlier in April and May, you started to see some of the concepts coming back in 2020 after that initial, like March and April shock to the business and to our system with COVID. So Q2 is probably going to look really good. The question is going to be, what's going to happen in Q3 and Q4? Q3 and Q4 are a lot of the QSR concepts that we represent and talk a lot about, are going to be rolling over some pretty big numbers.

My guess is that they'll probably start trending negative, maybe some of the stimulus and maybe some of the positivity of getting past, hopefully getting past the COVID crisis with all the vaccines, may be, in place by the summertime. Maybe that dampens the amount of the decline on a year over year basis for Q3 and Q4, especially if our economy is doing well and the stock market's doing well, and we're out of a recession and there's generally a favorable geopolitical climate, and those sorts of things. So if all of that's in place, I could foresee as second quarter as being really, really positive for a lot of these casual diners and darn it, they deserve it.

So, let's all be cheering for the casual diners and for the elegant diners and for the fast casual and for the independence who had to endure very little dining room activity and big same-store sales decreases over the last year. Let's hope that they see this massive increase starting in the second quarter and really the third quarter, but maybe at the end of the second quarter, and I think they will. On the QSR side, my guess is that you just see some kind of negative trending month over month as you start heading towards the back half of the year, but potentially not as strong in the negative direction as maybe one would initially expect because the economy could be stronger.

There could be a lot of government stimulus still in the hands of the average everyday consumer, could be in one of these ... I mean, I don't know that this is the base case, but we could be in one of these roaring 20s like recovery this summer. I mean, clearly there are a lot of people including me and probably everyone listening right now who is looking forward to the opportunity to, I don't know, go lay on a beach or go eat it at a steak house or go walking in your community and giving your friends a high five, things that we just don't do too much anymore. So there may be a return to that.

That's how I feel about it, but it's possible that the worst case scenario could play out that we end up in a little bit of a poor financial situation that the recovery doesn't happen as quickly, the COVID vaccine doesn't get rolled out and administered as well. We get into a stock market rut. We have some stagnation with some new government policies in place, and then you see the consumer pulling back a little bit. So, I have no crystal ball, I guess I generally like to be temperate and look at things in the middle, but keep listening because as the next few months come forward, we'll have better commentary and thoughts on that.

Now, as it pertains to political changes, after I said the Georgia elections went Democrat, and now it looks like obviously the Democrats control all three branches of the house, the Senate, and the Presidency. I do think we're going to see, like I said earlier, that minimum wage increases, I saw Janet Yellen, yesterday talking about how the U.S. can afford an increase in corporate tax rate. Right? Who knows where it'll be? Maybe it goes from 23.8 or 21 plus 2.8, right? 23.8% to maybe 28%, maybe 31%, maybe 35%? Who knows exactly where that lands as taxes on capital gains increase? It does impact franchisees in the sale of their business.

Franchisees typically have their businesses and assets sales, and they are typically allocated between real estate, which is land and building, Goodwill, furniture, fixtures, and equipment, and in those different allocations, and when we do these deals with our friends and our clients, we work with their CPAs to help them negotiate asset allocation for purposes of taxation, but clearly, because of the favorable depreciation laws that have been in the franchise space for a long time, they have a lot of the recapture, is at ordinary income tax rates on the furniture, fixture and equipment allocation, whatever that allocation might be, depending on the purchase price.

So, ordinary income tax rates will be increasing as well where we're fairly sure maybe, maybe not aggressively, but at least somewhat. I think again, I'm hopeful that the changes aren't draconian on the political side, I'm hoping that they're moderate, I'm hoping that moderate views will prevail after what's been such ... on both sides are really polarizing time over the last several years and obviously several months. I'm hoping that these moderate policies will enable our franchise industry, both of the franchisees and also for the customers who are eating in the establishment to be in a situation where there is some normalcy, some moderate activity, and some positivity for 2021.

Now, as you look at, how do I think the franchise industry is going to do in terms of franchise M&A activity? So we're sitting here, January is typically the first half of it, at least it's typically pretty quiet, right? Because a lot of our clients and friends are gathering their year-end P&L's, and it's natural for people to gather the year-end P&L's from their accountants, and those usually take two or three weeks. Then they sit and they look at the year-end review and they have some of their planning meetings with their staff and with their loved ones, as they think about what the plans are going to be for the next year.

So, we're in the start of the year, we're in that area where things are a little bit slow, and then typically it really ramps up starting in the February and March timeframe. My sense is, based on the activity that I see, that probably M&A activity for 2021, if I had a crystal ball would say that, we're probably going to be slightly up in the franchise side than 2020. 2020 was a slow year, Unbridled did really well. We had our second best year on record and we're within seven or 8% of our best year on record. I think that's an anomaly, I mean, humbly speaking it's because our company's growing and just really kicking butt. Right?

But I think if you were to interview or talk to M&A advisors across the entirety of segments, and even in the franchise segment away from us and apart from us, I think they would say that the activity has dropped significantly in 2020 from 2019. One of the reasons Unbridled didn't is because while we did maybe half as many transactions in 2020, believe it or not, they were at almost twice the size as they were before. So our overall volume stayed about the same while our number of transactions actually dropped.

I think the number of transactions that we'll do, and I know we're just a microcosm of the franchise industry number one, from an M&A perspective, and then we're definitely just a tiny little fly in the ointment for the overall mergers and acquisitions market across our country. But if I look at 2019, 2020, 2021, even if Unbridled does half the increase in transactions from 2020, from 2019, so if we do just halfway in between the two and 2021, and we keep our deal size the same, it's going to be a meaningful 30% increase in our business. So, that's how I'm thinking about it. I think that there's going to be more transactions that will happen. I think the transactions will stay about the same size, although they might drop a little bit in size.

I think you will see the mega deals and the big deals come back to the marketplace. But my view is, you're going to see quite a few of the smaller franchisees or the small middle franchisees sell in this year, because they're the ones who are most susceptible to all of the risks and all the ups and downs of this business as it pertains to managing something that's become so complex. I think there's more ... when you work in this business every single day operating restaurants, and let's say you own 15 locations in Des Moines, Iowa, you just by nature as an entrepreneur, live with more emotions, more psychological fatigue than someone who might operate a 400 unit business and has an entire team. Right?

So I think that psychological and emotional aspect of the ups and downs of this COVID cycle will cause a lot of movement in the smaller to midsize franchisees, and we'll see what happens with the big franchisees. We'll see what happens. It may be a little bit slower than 2019, but certainly a bigger pace in 2020. That's what I'm thinking now, as we sit here in January, we're sitting on like seven or eight new possible assignments in our company, which is probably a 20% increase over 2020 before we started the COVID slow down. So, that's my general guess, we'll see what happens.

But one thing I will note, and I'll talk a little bit more about this in a minute. That's how franchisees are pricing deals. There seems to be a lot more difficulty in meeting buyers and sellers, meeting of their minds to agree not only on the pricing, but the terms of a transaction. I would say that, in years past, it would be uncommon for us to represent a deal and then have, let's just say, represent 10 deals and have maybe more than one that had trouble where a buyer walked away or a franchisor wanted some heavy obligations, or there's a retrading on price and terms. But it seems in this early part of 2021 is, I'm just kind of looking back at the last few months that this has ... that the complexity and the renegotiation and a little bit of the uncertainty of the deals is going to increase.

There's a couple of reasons why, but primary one is that people are not accustomed to this huge swing in performance change in our industry. Right? So if you are buying a business that was ... it had $4 million in EBITDA in 2019, and then for the full year in 2020, it has $6 million in EBITDA, when historically it's been hovering between 3.5 and 4.5 million dollars in EBITDA, how is the buyer? As a seller, do you look at that $6 million EBITDA business? Now, as a seller, you'd say, "Hot dog, I got a $6 million EBITDA business and it's going to be that. If I'm going to sell it, I'm going to sell it at that price or on that priced on that amount of EBITDA." And a buyer is not sure. Right?

So, we are learning our way through how that works. Some anecdotal evidence will tell you this. I think that in any process we're running where you have this same scenario where the EBITDAR went from 4 million in 2019 to 6 million in 2020, for every seven or eight people who make an offer on a business like that, three or four or five of them are looking at it as, "Okay, I'll give you credit for some of the increase, instead of $4 million, I'll look at this as if it was a $5 million EBITDA business. Okay? But I won't look at it as if it's worth as a $6 million EBITDA business, because I think it's going to drop once COVID is over and restaurants get back to normal."

So that's maybe three or four of the offers. Look at it that way. A couple of the offers, look at it more conservatively than that, and a couple of the offers typically, depending on the brand, will give most credit for those that increases, and may say, "Okay, I'll take your $6 million in EBITDA, but I may not pay you quite the multiple I was going to pay you before. I was willing to pay you a 6.5 times multiple back in 2019, based on those numbers, or let's call it freezing math, six times multiple. I'd be willing to pay you 24 million, but now you know that you have 6 million, I'll be willing to pay you like a five or five and a quarter times multiple."

So the net is, that your EBITDA [inaudible 00:26:42] in this case, your multiple has dropped fairly significantly, but five times 6 million in EBITDA is 30 million, and five and a quarter is what? 31.5 million. Right? So, you look at what it was, the value was in 2019 and it might've been 24 million and now it's 31.5 million, and that's a sizable increase. So, the processes that we're seeing are dancing along those types of thinking. I think lenders are falling in line with that thinking too. So you're going to see like in our jobs, it's interesting because the variability and the unpredictability of the offers of the buyers, of the execution, of the offers that buyers make, all of this stuff is really, really unknown at this point in time.

Because of that, I think we might be looking in Q2 or Q3 backwards at the first part of 2021, and we might see that there are quite a few deals that are inked or ... they're inked, but they don't close, or if they close, they close after some prolonged renegotiations, especially as we head into the end of Q2 and early Q3, if same-store sales drop, and that's a big concern, right? If you're a seller of a business and your same-store sales are dropping during your due diligence period, that's not a good thing with the lenders and it's not a good thing with the buyers. It typically means a re-trade is in order if your sales are dropping in a measurable way, like 7% or more, you should expect that. So, I think that's a possibility.

So, what else do I see so far just from talking with people in the industry at the beginning of this year? I think we're going to see some segments and brands continue to do well. I just see just like a tremendous upside in the chicken space. Anyone who's listening here, the chicken space is really exploding, we're getting some exposure and some interest in some other brands that we're working on. I mean, you know I'm a former KFC executive, if you've listened to this podcast for awhile. So I have a natural affinity and inclination for Yum Brands, KFC, Taco Bell and Pizza Hut. That doesn't represent more than half of our work now. But I would just say that, having been a KFC loyalist for many years, I've turned a blind eye to what everyone in the KFC community has to, what amount of growth has happened in chicken outside of KFC.

Obviously you've got Chick-fil-A that really doesn't even act like a ... it acts more like a McDonald's, but you have a lot of the Zaxby's, the Raising Cane's, the Popeye's, all of it, and then the splinter, the smaller franchises that are growing as well, even resurgence of places like churches. So, I think we'll continue to see that segment be really, really hot in 2021, the interest is very high there. There's going to continue to be a professional investor flight to quality. There always is. They want the brands that are going to be really, really strong and resilient, and have a lot of development potential.

I think development becomes something that we talk about in 2021 a little bit more than 2020, right? In 2020, there was really no development, or it was halted in its tracks, at 95% of it was really because of COVID and the lack of financing, but as franchisors have started to adapt and they've started to skinny down the new prototypes with smaller dining rooms and stuff with smaller footprints, and I'm already talking with several franchisors who are really getting pushy about trying to reignite the development pipeline for 2021. I think again, you'll see the professional investors float to the high performing brands, like the Taco Bells of the world, but also, the Wendy's of the world and the Popeye's of the world. But I think you're going to see them float to the ones that have great development potential.

When you just think of some of the brands that have really good unit economics for new unit development, and that is needed to get a lot of these guys into these systems, especially if these investors are looking downstream at tier two and tier three brands where they're going to be buying like a 20 or 30 unit portfolio that may otherwise be too small for them. Right? They have to look at, "Okay, first of all, if I'm going to overpay a little bit to get into this platform investment, I've got to find a way to buy down my multiple, a little bit by being able to develop.

The second thing I think about if I'm one of those investors is, how do I get to scale on a brand that's maybe smaller and doesn't have as many acquisition opportunities among the franchisee space? And the answer to that is to develop new stores. Then if I'm going to get into a new brand that might have three or 400 units, and I operate in four key markets, and I'm just going to grab one of those markets and get a development agreement with a new brand, I've got to be really convinced that the development numbers in my existing brand and in my new brand really support the investment I'm making in those markets.

So I think development becomes and continues to be a big part of what you see in 2021. The question here is, with all the restaurant closures, could development be a new path? I mean, could it be ... I lived down here in the hurricane zone, right, in Florida, in the Gulf Breeze area, and we dealt with Hurricane Sally in September. I think it was September 16th of ... it hit unexpectedly. It was really brutal. No one wants a hurricane, no one wants anything like that to happen, but I make the analogy so that you can see that sometimes when a hurricane hits and things need to be cleaned up and fixed and closed and remodeled after a hurricane, what comes out of it is actually a really good environment.

A lot of people put money into their homes and redo their landscaping and really get back on their feet in a meaningful way. Maybe that's what happens in the franchise space after COVID, as we hit the back half of 2021, perhaps we get into a place where there have been a lot of closures, there's been thinning of the wheat from the chaff, right? We probably needed that industry that was really ... as an entire global industry was really not growing prior to 2020, and so maybe we see seven or eight or 9% less restaurants, maybe we see some corresponding increases in sales that are permanent, and maybe we see development start to happen again. So, that's something to be mindful of.

So, I guess again, I would reiterate, chicken looks really good to me, maybe the most resilient brands with the best development, new unit development economics, I get a lot of calls on brands like Wingstop, for example, or Papa John's, smaller kind of brands that don't own real estate and don't need as big of a footprint to succeed. So those types of brands, I think, are going to be really out there. Problem with some of those brands is they have a lot of smaller franchisees, and then in the newer brands, you don't have a lot of people who want to sell those units, right, if the economics are really strong, they want to keep their business and grow it. But those are concepts that I think are going to continue to do really, really well in 2021 too.

So, another couple of questions here that I just wrote down to answer, what are the longer-term trends that may emerge post COVID? I don't know that I have a good answer to that one. I just penciled that out and thought I'd talk about it for a little bit. I think you're going to see ... I like the contrarian view that you're going to see people go back into dining and restaurants again, I don't know how much it's going to return. It's an open question that no one can really answer. Do I see fine dining restaurants being a 100% full immediately once COVID is over? I don't think so, but I do think it's maybe going to come back faster than I thought before.

I was eating dinner with a good college buddy of mine. He lives in Chicago and he said, he said this to me in a way that I can understand it. He says people ... I think he goes, he's an professional investor. He said, "I think people are itching to go down to Mexico." I was like, "What? What are you talking about, man?" He said, "By saying people are itching to go back to Mexico, people are ready to get out and spend money, maybe go a little bit free with things, since they've been cooped up for so long and maybe that applies to fine dining." But I do think it will come back a little bit more than maybe summer, predicting.

Another one of my buddies who I mentioned earlier, who says that he feels like independence will really come back strong in 2021 and 2022. I hope they do, and I think he could be right, that we could see really a rebound of the casual dining, dine-in restaurant chains. Then I think the people that had problems, the brands that had problems that were covered up by COVID, that got an artificial boost to their brands and their franchisees health, probably are going to sink down to the problems that they had before. I think you can only hide a problem for so long before the problem re-emerges, unless there's really major systemic change.

So, as you drive down main street in your hometowns and you see several of the brands that look to be doing better now, but really weren't doing all that well prior to COVID, ask yourself if you think that they're going to stay, stay performing well, or maybe the trends there are going to change back and revert to where they were beforehand. One of an interesting line of questioning that I've gotten recently was, do people do minority investments in franchises? I would just chat about that for a minute, for 2021, I think you may indeed see the trend a little bit, operators have good businesses, $10 million in EBITDA or more on the franchise side.

They may be owned by the first-generation founder, or they may be family office backed, or they may have an investor, a smaller investor in the business. But I think that you may see people say this, they may say, "Hmm, 2021 looks to be great, I can't begin to replicate the returns that I'm making in this business and anything else that I'm doing, but yet I realized that taxes may be on the increase." And our valuation is at an all time high right now. So with that being said, like, "How do I take advantage of this?" Now, if you are owning a 100 shares of stock of IBM, you might sell 40 shares of them to dilute or liquidate part of your position and hold the remaining part of your position. That would be a way to reduce your risk, and lock in some profits now, but continue to own IBM stock.

Up until now, especially if you're playing around in the five to $15 million EBITDA space on the franchisee side, you really don't have anything like that. Right? I mean, it hasn't been very common to see people sell or invite investors into their business to buy, acquire, or to invest a minority share, but not have control. So, I've just been listening to one particular friend of mine who thinks that's going to be a thing for 2021. I've also been thinking about what the investment market might be. I think it's there. I think there are investors who like minority positions even in a somewhat uncertain environment, because of the strength of QSR.

I don't think all industries, especially industries that are down, you probably don't see minority investors around as much, right, they're going to want control and they're going to want meaningful board seats, and they're going to want to dictate when the business is sold. But if it's a strong performing business and you have a franchisee who may not want to sell but may want an investor to take maybe 30% of their equity out of their business to be able to put half of it, let say, in their pocket and the other half of it to place towards new unit development, then I think that model exists and I think investors are there. I think there's myriads of investors after talking with them over the next last few weeks.

So, that's something that we may see in greater amounts. When I'm talking about that, like we may go from zero transactions to 10 of those types of transactions in 2021, who knows? At the end of 2020, we were talking about taking a shareholder distribution. Right? If you're structured in the way that you could do that to take advantage of current capital gains tax rates, to do that and take a little bit equity out of your business that way by maybe borrowing more money and levering up at low interest rates, and paying today's capital gains tax before it increases, I think several clients opted for that type of maneuver in 2020.

I think that was probably a good move because obviously capital gains taxes and all other taxes are not going down in 2021 and 2022, if anything, they're going up. But that is another mechanism that I see for people who might not want a minority investor in their business, is maybe somebody who continues to look at this idea of borrowing money to do a shareholder distribution ... Talk to your CPA to make sure that you can take advantage of the lower capital gains taxes now.

One big question is going to be, clearly, what do you think about the 2021 from a tax increase perspective? What's the timing on it? Do you feel like it will be made retroactive to January 1st of 2021? Which does not seem to be a common view, but nonetheless, it's a possibility. I think that is just my wrap for today. It's a wait and see outlook for 2021, but I am hopeful that we're going to see a decent size recovery, and then that recovery is going to really buoy us as a country, and maybe along with it, we'll see our beloved franchise industry continue to thrive and flourish like it's been doing for the last seven or eight months.

To everyone who's listening, man, keep the faith, know we're going to get through this COVID crisis soon. By the time you listen to this, maybe we've already gotten the vaccine, who knows? But I think there's some big optimism and a lot of hard work in front of us. So, take care and we'll talk to you soon.

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