Rick Ormsby
Welcome to the Restaurant Boiler Room: Season Three, Episode Nine. I'm your host, Rick Ormsby managing director at Unbridled Capital. Today in the Boiler Room, I'll be sharing some thoughts from a recent conversation on how to build a winning international development team to grow a franchisor's unit count overseas. I'll also be chatting about some observations on Franchise Times, top 200 franchisees by size. 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 franchisors on a monthly basis. Feel free to find our content at Unbridled Capital's website at www.unbridledcapital.com. Now let's enter the Boiler Room.
Rick Ormsby
Well, hey guys, pleasure to be here today to talk with you. It's funny. I just came back, we all have bucket list things we want to do in our lives, right? And so, one of the bucket list things I've been saving up for and thinking about for a long time is to go lobster hunting, right? Because I've had friends who've done it and just, "Ooh and ah," about how much fun it was. So in the Florida Keys, there's a two-day season typically in the summertime. And I just got back, it's usually in late July. So this is going to be a little bit delayed when you hear this. But I just got back from a two-day kind of lobster season down there and went with a couple buddies and what a blast, man.
Rick Ormsby
So, we were free diving for lobsters. You get a license and you get a guide and they take you on a boat and they take you to a place where there's these animals are nocturnal animals, right? So they hide underneath crevices and things in the coral and you free dive down to about 10 to 12 feet and the guide gets a little poker and pokes the lobsters out that come crawling out of the rock and you go down with the net and grab them and pull them up, and it's quite the experience. And it's very much an interesting, your body has to be good at doing a couple things. You got to have power and speed, but also be able to handle water depth and be able to hold your breath. And it is a difficult thing to do, but it was a blast. And my wife reminds me that it shows a little bit my personality, lobster hunting, okay?
Rick Ormsby
So as a case in point, people who knew me as a kid, when I was five years old, I was that kid during the Easter egg hunting competitions at school that would dive in front of all the other kids, grab the egg and roll away from them, stuff it in my bag and jump to a standing and start sprinting to the next egg, right? You remember that kid? That was me, man. You probably hated that kid. But it's with that kind of fervor that I went after those lobsters and my wife pointed out to me, "Man, Rick, everything you do is kind of like the way you either lobster hunt now, or go after eggs when you were a kid." So I don't know what that makes me, I think I'm half crazy, but anyway, there's a little personality there for those of you who listen to this. I hope you guys are doing well. And I have really two things I wanted to talk about with you today.
Rick Ormsby
The first was recently, I won't name him by name, but there was a large, one of the world's largest franchisors, has an international development team that they're trying to motivate on how to find leads in the international markets. And when I say leads, this is something that I see more and more. I've gotten probably a half dozen phone calls from different franchisors in the U.S. mostly who are like "Rick, because of COVID or whatever, if there are brands, whatever the brand is, that are closing down units or in distress, or what have you, we want to come in and potentially buy those units or convert them to our concept," okay? That's kind of the steady drone of phone calls, I'm now getting from franchisors. And so, for those of you who are in these franchise brands, perhaps you're already getting the pressure for development coming out of COVID, right? But it's starting to happen. And the franchisors are looking for opportunities. And some of these opportunities are on the corporate side, not for franchisees, but for franchisors themselves, who may actually have an asset-like model that only has five or 6% corporate ownership.
Rick Ormsby
But there are others have higher corporate ownership that have called me, but that's their interest is to grow their corporate footprint with store count and to do it by looking at abandoned locations or companies that are in distress and then to rebrand them. So perhaps it portends a heavier kind of lean on the franchisees for new development too. And for those of you who are franchisees, who are doing deals, a lot of them, which we are doing, when you go to the franchisor, they're asking probably for bigger development asks than they have in the past, right? Some of you are nodding your head and saying, "Yeah." And it's because of the optimism from QSR and the desire both publicly and privately for companies to grow their unit count and to grow it, and to create that storyline while their concepts are doing really well on a post-COVID basis.
Rick Ormsby
So anyway, so I've gotten a lot of these phone calls and I did a webinar, across the country with, or across the world with these people in these markets. And I just, I was asked to kind of give them a little bit of my thoughts on how you develop opportunities and find leads and all these different countries to which I don't have the answer, right? But I can tell you kind of my perspective on how to do that. If you are a franchisor... I know we've got a lot of people with franchise owners who listened to this podcast. And I also know there are people internationally who listened to this podcast. So the first thing I would say is just this, doing business internationally is a daunting thing to do from an M&A perspective if you're a company like Unbridled Capital, right? Or any other company, because of the tax and regulatory and political climate in some countries that maybe don't have as favorable of a political climate or form of government. But there are a lot of unknowns when doing deals in foreign countries. That's my first comment, right?
Rick Ormsby
And so, historically, we've been kind of, I've personally been casually involved in several international assignments over the 20-year career that I've been involved in stuff in Costa Rica and Canada and Mexico and some discussions and just some kind of consultative kind of advice and things. A lot of it unpaid, just kind of with friends and colleagues down in places like Argentina and Chile, and then over in Spain. I don't know if some of you may know I speak Spanish. So, I kind of liked those countries where I can use my language skills there. But the issue typically is for any advisor doing business overseas is difficult, because we don't know what we don't know. There's a lot of regulatory issues. There's legal things that you just don't know in other countries. And so, you have to associate with people in a way that, the cost of doing deals in foreign countries is much, much higher, oftentimes way prohibitive in terms of doing a deal, right? So that's, that's one thing.
Rick Ormsby
The second thing that you find in doing deals overseas is they ain't got that, these franchise brands, ain't got that same type of reputation and street cred that they do here in the United States. Pick any one of these big brands. I mean, outside of two or three of them, you obviously you've got brands like some of the big legacy brands that you see if you were going to travel to England and you look around and you see them on the street corners, right? We all know who they are, the five or six that have a big penetration and some of the Western European markets, and even in China and other places. But largely speaking in most of these countries, especially ones that are developing, I mean, they don't have the street cred and respect. And so, they don't have a national lending program like we do here in the States. I mean, here in the U.S. man, for a good tier one 4,000 plus unit franchisor brand that has good performance, there's 25 or 30 lenders who are willing to take a look at those deals and finance them.
Rick Ormsby
And so, maybe if the valuations get a little bit over your skis on some of these brands that have way high, eight times or more EBITDA, kind of multiple prices on their businesses, you've got to put 40 or 50% equity down on a deal. And that's tough to do if you're trying to make a certain type of return, it depends on who your shareholders are and your thoughts on future growth, but on most deals here in the States that are trading in the six to six and a half times range or five and a half to six and a half times, or five to six and a half times range, depending on the brand, you can typically find 70 to 80% loan to value financing, right? From multiple lenders at low interest rates. And these are people in many cases who have dedicated the big banks. They have dedicated franchise lending programs and they're used to seeing a steady diet of franchise deals, whether they're through M&A transactions or just refinancings or partner buyouts, or maybe corporate organization is refranchising stores.
Rick Ormsby
Whatever the case may be, there is a robust market and an educated market on how to finance those deals and hold credits in those deals. Well, that really doesn't exist as much internationally, because franchising isn't as penetrated or as saturated over there. And so, what you see is you pull back the onion a little bit and look at how these brands have grown. And I don't have a perfect crystal ball. I'm just kind of talking from off the top of my head from experience here. But man, you see a lot of joint venture relationships, right? Where a brand will go into some organization in Russia or wherever it might be and might strike up some sort of a 50-50 deal, where they provide all the capital and financing in exchange for some of the expertise and the right to have the franchise and the right to have the franchise administered by the franchisor.
Rick Ormsby
And that becomes kind of a way to do it, because these large organizations have a lot of capital and a lot of the capital is done without debt financing or with limited debt financing, because the banks aren't so comfortable doing it unless they're lending money to a large organization, like a billion dollar fund, state-run fund or something that has access to capital in a way that's really stable, right?
Rick Ormsby
So that's what you see, see a lot of joint venture relationships overseas. And then frankly, if it's going franchise to franchise, if one franchisee is buying out another franchisee and let's just use a silly example of someone buying, going in to Chile, okay? Or maybe we're talking about Germany. I don't know, but take those two cases in point, and there's a franchisee who owns 30 or 40 restaurants and they want to sell them to another franchise who wants to buy them. My limited experience tells me that a lot of those deals are happening mostly with cash and investors and within most cases, not all cases, but in most cases, a limited amount of debt financing. And when you call these banks and lenders in the United States that are international in size and say, "Hey, so-and-so, I know you've got locations all over the world, including in this country and in big quantities, will you lend to this brand that you lend profusely to in the U.S.? Will you lend to it on a deal in wherever in another country?"
Rick Ormsby
And their answer in my experience has typically been, "No," that the operations in the foreign countries are localized to that market and they don't report through some franchise chain of command that goes international and local and U.S. in under one hat, if that makes sense? And you can see it in the franchisor conventions too, man. Over the years, I can just think of one in particular near and dear to my heart. I won't name them, but they always have the Caribbean, Caribbean and Latin American convention and two days before the national U.S. convention and one ends and the other starts and always kind of thought that was kind of strange. I understand why they have different business issues and different languages and all this stuff, but I'm looking at it and I'm thinking, "Aren't you all the same brand and only separated by different countries?" But yet they do them totally separate, right?
Rick Ormsby
So that's one of the challenges with doing deals internationally. And so, if you're going to be an international franchisor and you're trying to grow your footprint, and you're trying to maybe look at weaker concepts, like the [inaudible 00:11:32] Pizza deal that Pizza Hut did years and years ago, where they went... Yeah, I said years and years ago, four or five years ago now, I'm not sure, where they kind of go in and they bought [inaudible 00:11:40] Pizza and kind of their strategy in many of the markets, it was to rebrand the [inaudible 00:11:45] Pizza name in some, but not all the markets to Pizza Hut, basically like change the sign on the front, change the ingredients in the back. And you're up and immediately with your concept Pizza Hut. But you've got this distribution network that's way penetrated and way ready to go with the operations team in place and the delivery routes in place and all these things that you need to run a business, not from scratch, but to take on a continuing business.
Rick Ormsby
So, you think if you think of it that way, it's just really hard to find those opportunities. I mean, is it true that the failure rate of franchise businesses and most businesses in a lot of these developing countries is higher than it is in the U.S.? Yes, I would say it's true. That's again. No, no, just anecdotal evidence. There are nothing that I have to support that other than my feelings and thoughts, but that's typically the case. So there's opportunities now, how do you find those opportunities, right? The first place that I've seen, people want to go to find opportunities to acquire underperforming assets and rebrand them for as a franchisor in other countries. And then, several franchisees have called me on this is they typically go like the big three route, right? They go to some big consulting company that's broad in scale internationally, and they hire them for an engagement of some kind where they do a market study with a lot of data about the opportunity, okay? In this country or that country. So that's a valuable exercise, no doubt about it.
Rick Ormsby
But those firms, in my opinion, my limited opinion, aren't providing many boots on the ground to find the opportunities. And these opportunities are typically found in the trenches, right? So that's maybe a place to start to get data and information, but I don't know that really helps you from a boots on the ground perspective, find the next 20-unit underperforming Asian concept that is ripe for an acquisition to be rebranded to a taco chain or whatever the heck it would be, right? The second thing I would say is to that end, where do you find those international opportunities? I would say those opportunities are probably found locally and it's kind of the same old adage or not adage, but example of pulling into a new town and trying to find a home to buy.
Rick Ormsby
I mean, the best thing to do, if you can get the cost structure right of the situation is, and you're not paying too much for the service, is to find somebody who's lived there their whole darn life and knows every street corner and knows every proprietor in every house. And whether it floods or leaks or how long he's been there and who owned it before you and all these other questions that you just don't know the answer to it's a relationship and information situation, but I think it happens still very much locally, much like here in the United States, let's say, you're going to go to Pittsburgh and you wanted to open a business and you needed an office. Well, you may call a commercial broker and ask him, where's the place to be? What are the rates and all these other things. And so, my encouragement to these people who are listening here and are trying to develop an international portfolio is you got to find boots on the ground with people with local knowledge. And I don't think that's changed.
Rick Ormsby
And in the information world we're living in now, man, we're inundated with information. We all have so much information at our fingertips, but I mean, today's 30-year-old kind of generation is bad at building relationships. They want to try to build them behind phones and emails and not in person. And that relationship building and that local knowledge are both very, very important, I think still. So that's one of the first things I would say, find some local person. I don't know who it looks like, man or woman, or what their qualifications are, but someone who has touch with the local businesses and the business environment in the town where you're trying to find opportunities to acquire underperforming assets to rebrand, right? That's the first thing I would say. And you've got to get involved in creating a network of people.
Rick Ormsby
You probably want to talk to the local bankers, commercial bankers, especially who might lend money and some of the local CPAs and some of the local attorneys as well, who tend to in foreign countries, likely have more inside information and more access to these clients then is maybe a little bit more readily available here in the United States. And I think that kind of creates the initial kind of wave of building a network to see if you can find international opportunities. I mean, clearly there may be things like conventions and local networking events and things like that that you can also dial into, especially if you're trying to prospect in one city in a foreign country. Those are things to be thinking about too. And like I told this group, I'll say it here. Another old adage is Dale Carnegie had a great book. That was kind of a breakthrough thing for me when I was in my early twenties. Maybe some of you are listening to this are nodding your head, right? It's called How To Win Friends and Influence People. Pick up that book, read it.
Rick Ormsby
There are basic things that you need to do in order to develop relationships, to find opportunities. These are things like smiling at people and listening to their needs. And you know what I mean? Putting their desires above your own. So some of those things, I think are time-tested strategies that will apply regardless of what country you're in or what opportunity you're looking to do. It is a challenge, especially in international countries where COVID has been hit really hard, A and B it may have been more delayed, right? It happened in greater quantity, but after it hit the U.S. and so a lot of these countries are just not in person that much. And I feel for people who are trying to build relationships that way. I mean, we all do what we can, but if you're trying to build international relationships in COVID through Zoom calls, I mean, that's a tough thing to do, but I'm trying to look at some of the other questions here. Some of these franchisors want to talk about the size of the deal opportunity.
Rick Ormsby
And I think this is something that you want to think about, define the type of opportunity in size that you're looking for. It is true that a lot of these smaller transactions, and this is something that applies to everyone who's listening to this in the United States as well. Smaller transactions, like a four-unit acquisition takes almost as much time as a 40-unit acquisition. Pardon me? So, question is, how do you want to spend your time and resources? Are you trying to find a four or five-unit opportunity that you can uncover and then convince a franchisee to potentially open new stores there? If that's what you're trying to do, then that's fantastic, but know that that is probably as difficult to close as a 40-unit opportunity, right? And that's obviously where the business is going here in the United States too. And why you see so much consolidation.
Rick Ormsby
It is true that a lot of the friends and people that I knew in the business when I first started are four- or five-unit franchisees, and they've all gotten out, they've all sold their businesses here in the United States. And because it's too complicated, it's too much to run it. And it can be that way for people who are buying assets too. As an aside. And I know I'm all over the board here today, but I just got a phone call recently, I mean, within the last week, from someone who just basically said that they'd been told that XYZ, large franchisee is no longer interested in buying three or four restaurants, it takes too much time and effort and G&A cost to put behind buying a four-unit restaurant acquisition. So that's kind of a bit of a scary comment, isn't it? So if you're a small franchisee, I don't know how many small franchisees are on this podcast.
Rick Ormsby
I'm guessing not many, but if there are, it's not a trend that's favorable for you, there's still enough liquidity for you, no matter where you are to make a deal, there's still a great spirit. Don't let anyone tell you differently or see it on the Neat TV and think differently. There's still a great entrepreneurial spirit in this country and people want to operate small businesses, however challenging they may be, and they are challenging, but the trend is going to larger groups that aren't interested in the two and three and four-unit deals as much anymore. And so, it's become a more challenging place to live for sure. It's become a more challenging place to live. When you do get involved in an international M&A deal, and this is probably the last comment I'll make here, I guess, I would say in your franchisor you kind of got to be thinking about being a Jack of all trades.
Rick Ormsby
So, if you're a franchisor listening to this, you can't really be thinking about having multiple teams working on an assignment or a deal. You got to have one person who sees, who probably sources the deal and helps to execute it too, because there's so much learning and local knowledge that has to be imparted on that person. And that person knows so much that you can't really replicate across countries very well. So I think it's very much from a staffing perspective, you've got to do it on the backs of people more so than on the backs of process would be my kind of thought. A large company wants to try to instill process and blanket everybody with the same process, but in these international markets, there is just little conformity and uniformity across them. It's really a local knowledge person by person relationship by relationship type of effort. And it probably needs to be staffed that way.
Rick Ormsby
So, if you are trying to build an international team to develop, acquire, rebrand and run a bigger organization and do it in a place where banks and lenders aren't exactly excited to work with you all the time. And the opportunities are a little bit uncertain and unclear, I think you've got to be thinking about doing it with really talented people who fit the profile of a hungry go-getter, who's willing to go into an establishment or drive by an establishment, look at it and say, "Huh, in this market, it looks like this pizza chain or whatever isn't working really well. I've driven by there for the last three weeks, and there's no one there at lunch. Gee, that might be a trend." And then walk in there and knock on the door and talk to the manager or something. I mean, sometimes you've got to have those types of self-starting, scrappy people to make things happen. Maybe you need the type of people who when they were five years old, were willing to sacrifice their bodies to get as many eggs in the Easter egg basket as possible. So there you go.
Rick Ormsby
So, for the second part of today, I wanted to talk a little bit about the franchise. The restaurant monitor comes out with a top 200 franchisee ranking every year, and in the kind of the July issue, Dennis Monroe of MMB, who I consider a good friend and really an expert in the area for many, many years, maybe 30 years or more, came out with an article about kind of what he noticed about the top 200 franchisees. And I just want to just briefly talk about that because, I mean, I'm probably one of the three or four people around this country who can talk about it, that whole list with some authority, because I know almost all of the people, kind of noticed that the top seven on the list all have, over $1 billion or more in revenue. And as I look at the top seven franchisees, yeah, there's some big groups.
Rick Ormsby
I won't mention anybody by name, okay? But you have one group that has six different brands. Another that has just two brands. Another that has a couple of brands and you see a heavy concentration in the top seven of people who are QSR heavy, a lot of QSR. Now that makes sense, doesn't it? I don't know the numbers, but if you look across the franchise space, across all franchises in this country, what you're going to find is still a line share of them are legacy QSR concepts. And those are the ones that of course have been picked up the most and consolidated the most, and the top seven franchisees in the country are heavy into the QSR concepts. The ones we all know, the ones that are on every street corner and those guys, the top seven have $1 billion or more in revenue. And they've been growing quite a bit too. Several of them have made major acquisitions. It looks like one of them has bought a franchise, small franchisor.
Rick Ormsby
And so, a lot of them are backed by institutional capital at this point, pension funds and teachers unions and all these things that give them kind of a really low cost of capital. I don't know exactly how any single one of them operates, but I can tell you, a couple of them are family office-based who are long-time holders and acquirers, most of them. But when you have money where you're promising an investor, pretty much a low-risk return because you're so large, that low-risk return, right, is going to be corresponding with a lower return on investment. I mean, it's just the way it works. If you're going to sign up for low-risk, you're going to sign up for a lower return. And that's, what's happening with these, they're kind of the general idea behind all of this is that as these big franchisees get scaled, they become a lower risk organization or entity. And as they're a lower risk organization or entity, they can give their investors a lower return, because they're lower risk.
Rick Ormsby
And then, they can go off and buy assets at the same price, or even a higher price in a growing market and still create a nice business with a nice profit margin. This article that Dennis is talking about right here, Dennis Monroe talks about the second group, which is numbers eight through 500, which typically are 300 million in revenue down to, I don't know how much, I haven't seen the actual numbers, but again, he makes the note that there continue to be QSR-dominated. And oftentimes, the only have a couple of concepts and they have some diversification, but not a lot. And you see a lot of the casual dining groups falling out of the list and he makes a comment, and I think it's right, that buffets now are really kind of virtually non-existent. And so, any concept that had a heavy concentration in buffet, if you were that type of a group, you've probably dropped a lot in terms of the biggest franchisees by revenue or by number of units, right? Because you've either closed stores or your revenues have gone down quite a bit.
Rick Ormsby
So that's something to notice. The top 50 outside of the top seven, the rest of the top 50, this is my comment, but I'm sure he would make the comment too as with many others. It used to be dominated by people who were first-generation franchisees or second-generation franchisees who were maybe independently backed. And they were backed by their family. And they'd grown the business in a pickup truck, one store at a time. But now it seems to be that a lot of those large companies that have a couple a hundred restaurants or even the ones that have 100 restaurants have slowly, surely been inviting kind of equity sponsors and family offices into their business. So I think that's a trend that we've been seeing kind of increasingly since 2015 and it's getting stronger. And I think that'll be a trend that will certainly continue.
Rick Ormsby
And then, he makes note of the third group of the largest franchisees numbers, 51 to 200 and he says, "Particularly that most of them operate a single concept." And that's something I think I've noticed too. So, the ones at the very top have taken the, in size, have taken the approach of having several concepts, maybe only two or three, maybe three or four or five, but they've had several concepts and they're building out those unit counts to get large, right? And they believe in most cases in geographical diversification and brand diversification, some of the ones that are still big, but smaller in size have not done that as much. And you can take two different models. I mean, one model is to be big and diversify. Another model is to be smaller and concentrated. In my experience over the years, I love the idea of staying small and concentrated. Maybe the risk is higher, but you're an expert at something. I mean, and your time and talents and treasure are focused on one.
Rick Ormsby
And if you, do it darn well, dag on, you're going to make a good living doing it. And I think you see that in the third group of franchisees who size is ranked between 51 and 200. And I liked that model. I like that model. Obviously, the organization has to be bigger with more bodies, more brains and all this stuff, if you're going to have five or six brands that you're operating and operating them all successfully and profitably or planning for the natural ebb and flow of the mojo of these brands going up and down at dissimilar times, and that always happens, right? So when you have multiple brands, five or four or five brands, you can always count on a couple of them typically being high and a couple of them not doing well and some kind of somewhere in the middle.
Rick Ormsby
And like I've said, over the years in the podcast, momentum's a difficult thing to measure. It's hard to predict. Sometimes you get it and it's hard to keep it, but when you got it, you just got it. And when you don't, you don't. And some of these brands catch a fire of momentum, even in the same business cycle, macro-economically, while others aren't. And you've seen that even in QSR during the pandemic, man. You go to some brands, they have the same drive through they're on the same street corner, they serve the same hamburger and they prior to the pandemic had similar amounts of customers. And yet one concept is up 15 to 20% in sales on a year over year basis, and the other is down 10% on a year over year basis in sales. You wouldn't have necessarily predicted it, except for when you look in the rear view mirror and you say, "Huh," someone just caught some momentum and maybe the franchise or makeup, franchisee makeup, and the other brand trended towards groups that were not as good operators.
Rick Ormsby
I don't know, it's not easy to see, but momentum usually shifts. And that's what diversifies some groups, but some of the other groups, not so much. And some of the comments that were made or points that were made by Dennis here about franchised concepts. Yeah, they have, right? So he says that the franchise concepts that these up-and-coming franchisees and the top 200 have, are typically concepts that are growing. A lot of them are QSR, and a lot of them have a strong focus on technology. And maybe that's something to be thinking about, how is your brand doing from a technology perspective? In a vacuum, we can all say we have a lot of initiatives and things are awesome, but man, it's like opportunity costs in life. I could go out and say, this is a good investment, but I always ask the question, is this a good investment when compared to these three other investments? And then, I decide if it's a good investment. I don't just say, "Hey, this sounds like a good investment."
Rick Ormsby
It's the same thing with technology is the brand you're looking at or the brand you're getting involved in is its technology good and strong? Well, you can say in a vacuum, "Yeah. Awesome. We have a great app and we're improving it. We're doing this and that and the other and blah, blah, blah. And we've got a lot of digital sales and Door Dash is bringing stuff to the client, the customer's door and man, we're investing money in it. Okay, that's the answer you get. But then I would say compare yourself to the top three in the industry in this area and tell me how you're doing. Not just how you're doing, but how you're doing as in the pace of change of your technology to other groups, then you get a different answer I think. So technology is something groups that are growing, franchisees are growing, are growing and brands that have a heavy emphasis on excellent technology. I think that's a cool comment, don't you?
Rick Ormsby
The financial stability of some of these operators in the 50 to 200 range is probably been bolstered pretty heavily by PPP loans and the forgiveness program and heavy QSR concentration, okay? Yeah. And they have in these groups and they have access to private equity and family office capital too. And that's something that we've seen over the years and you've heard me talk about a little bit, but as the space gets more and more ceded let's call it. The field gets ceded with more and more family office, private equity and investor groups that aren't just the original franchisee in the pickup truck who has 50 units, you're starting to see that these same institutions are becoming interested now in smaller transactions and in brands they weren't looking at before. As a case in point, we just had a 15-unit business for sale. I mean, that's not that big of a business, right?
Rick Ormsby
I mean, of course I'm honored to have the opportunity to work on a 15-unit business, but it's not that big of a business to be thinking that some of the buyers are going to be new family office and private equity organizations that want to get into a brand that would have been something that would have been way too small in years past for a platform acquisition. And so, I think we're seeing family office, private equity 2.0 or 3.0 in which they're willing to go down to smaller deals maybe because of competition, maybe because of scale. Maybe it's just that the new groups that are getting in may not feel like they're confident that they can get in at a smaller deal size and make returns that are smaller. Maybe there's investors now. And I think this is true, who are willing to invest in smaller businesses than they were before. There's a couple of key takeaways, and I think as I look at these top 200 franchisees across the country, I'd make a couple of comments myself. Some of these Dennis has made as well.
Rick Ormsby
I think there's going to be this dichotomy and we'll see who's right of people coming into diversification by brand, or just staying concentrated in a brand. I think both can work. Both can work and both can be successful. Both have their ups and downs and their strengths and weaknesses, but that's either of those as a way to grow, you see less and less concentration of casual dining and fast-casual companies on the list and with size across the country. I think this will continue to be the case in the short-term. The trend going into the pandemic was not favorable for casual dining and for fast-casual. And I particularly want to note fast-casual, because casual dining man, everyone knew the struggles they had and they're coming back fiercely. And I'm really excited for that. And I think it may be a good wave of M&A activity and some things that people should be considering going forward in those spaces.
Rick Ormsby
But for fast-casual, it is true that there were a lot of somewhat struggling franchisees with medium-sized unit counts in these brands and coming out of this and looking now at the largest franchisees, I think that you're going to see a trend where maybe people are pulling away a little bit from fast-casual. So except for maybe a handful of fast-casual companies that really have done really, really well with a sustained track record. I mean the fast-casual model has just been riddled with rents that were too high, too big of a dining room, sales that were probably built on too complex a menu and a customer that's being targeted, that was a customer that was like a millennial going to an office and now the model has changed a little bit. Millennials are finicky, number one, and number two, they're not going to offices as much anymore, right? They're eating from home. So a lot of those concepts I know have been really struggling.
Rick Ormsby
And some of those of you who are listening, who operate those concepts, I feel for you, because I love fast-casual, and I love the idea behind fast-casual, but it may not be as strong as it has been in terms of unit count in sales going forward. I think smaller operators will continue to get consolidated even with the tax situation, we're here in 2021, and might there be a big tax, capital gains tax change sometime soon, maybe at the end of the year? Maybe, could it be big? I don't know, maybe. Let's hope it's not, so that it doesn't stunt the business of buying and selling and financing restaurant companies and other franchises. But I just think, I just think you're going to see a continued trend of consolidation regardless. Maybe the first wave this year, people were trying to sell for a big gain after a long time, because they have a big tax basis or have almost no basis and have a big tax bill to pay.
Rick Ormsby
But maybe the companies in 2022 and 2023 if taxes go up, are the ones that sell that don't have as much tax to pay, because they don't have as much of a gain. So that represents a silent majority of the franchises across our country, doesn't it? We spend so much time talking about QSR, just because of how well it's done and how many units there are. Another thing I think you're going to start seeing in this 200-unit group is you're going to start seeing more and more non-restaurant franchises pop-up, I really do. Those non-restaurant concepts, not all of them, but many of them did suffer inordinately during COVID, right? Especially if you're health and beauty or you're an exercise gym franchise, any of these things where you were in person and had someone in person kind of a clinician or somebody training you, I mean, those were hit pretty hard by COVID, right? And they've come back a lot.
Rick Ormsby
I mean, I don't know about you, but I'm at the gym every day again, and the gym's packed, right? But I do think they've struggled a little bit, but as those concepts come back after COVID, I think the natural place for these large franchisees to consider diversification, because not a lot of them are doing it is outside of restaurants. I mean, there's more new unit development and green field potential. The franchisors are going to be more reasonable most of the time, not always, but they're going to be more reasonable in terms of the development ask, in terms of the territory you're going to have, in terms of the royalty, in terms of the kind of the dreaded food safety audit in QSR probably won't be quite as demanding in some of these places. And so, operating them is easier to do with less bodies. It's easier to make it robotic or to take labor out of it as labor costs increase. There's a lot of reasons why maybe non-restaurant franchises are going to be a way in which some of these larger organizations are going to diversify.
Rick Ormsby
And I hear this all the time from people. Matter of fact, I was just on a call 30 minutes ago with people with an investor, a large investor asking about investing in a franchisee's business. And the franchisee says, one of his strategies is to grow outside of restaurants, okay? So, I mean, that's just a trend that I think you're going to continue to see as we move forward and change is the new normal. So whatever I'm saying now probably is going to be the darn opposite in like six months, I don't know. But I thought that was an interesting perspective as we look at how the landscape is changing in the franchise world and the brands that continue to evolve with technology continue to do a great job with operations and customer experience are obviously going to be at the forefront of all of this.
Rick Ormsby
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