Rick Ormsby:
Welcome to The Restaurant Boiler Room, season four, episode two. I'm your host, Rick Ormsby, managing director at Unbridled Capital. Today in the boiler room, this episode is the audio of the interview I just completed for the guest speaker series at Kennesaw State University's franchise management class. I give some background on my personal and professional story, and I explain how Unbridled Capital operates within the franchise M&A industry. I hope you'll find the interview useful as a broad overview of how the franchise industry operates, how an M&A advisor does their job, and also maybe a little personal motivation about overcoming adversity and achieving success. 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 franchise orders 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.
Jordan Krolick:
So thank you all for joining. This is KSU's franchise management speaker series. My name is, Jordan Krolick, professor of franchise management here. My background, just so people know as an independent sponsor, and that's where I've come across, Rick, consultant, former senior leader with companies such as McDonald's, Arby's, Home Depot and Moore, and CEO and board member of mid-size organizations. And so, with that I welcome you into our program. More important, today we have one of the growing M&A [inaudible 00:01:42] tell you, one of the growing superstars of the restaurant industry, a true franchise influencer. We're excited to have Rick Ormsby, who's managing director at Unbridled Capital. And with 20 years of experience in franchise investment banking, Rick has worked on hundreds of franchise M&A assignments representing billions of dollars in transaction data. Rick began his career in finance, operations, real estate and franchising at the corporate headquarters of Yum! Brands, and KFC in Louisville in 2005, which seems like yesterday to some of us. Rick left KFC, became an entrepreneur with the goal of helping franchisees in the financing or the sale of their businesses.
Jordan Krolick:
Small assignments in the beginning, through to the larger assignments, and from tailor made M&A solutions to complex capital raises, Unbridled delivers unconventional, unrivaled and unparalleled financial expertise, and dynamic growth strategies for its clients. And with 20 years of experience in franchise investment banking, Mr. Ormsby, Rick, has worked on hundreds of M&A assignments representing billions of dollars in transaction value. And I can personally speak, I hadn't come across Rick, I would say six, seven, eight years ago, and now it's incredible. His firm and Unbridled, they're basically doing just about every transaction I come across. And that means when a company wants to sell, whether it's a couple stores or more regularly, 20, 30, 40, 100 stores, I think Rick is on the shortest Rolodex that these operators have.
Jordan Krolick:
Rick is recognized as a leading authority on franchise finance. And so, guys feel free to ask any questions on that, and is often asked to provide commentary on current events involving some of the worlds renowned restaurant companies. Holds a bachelor of science from Texas A&M, which we won't hold against you, and an MS from the University of Illinois, and is a fellow alumni. That's great to see, and an MBA from Vanderbilt, and spent four years at the U.S. Naval Academy. And he lives in [inaudible 00:03:39], Florida with his wife and two kids. So with that, we're excited to have you.
Rick Ormsby:
Thank you so much, Jordan. That's quite an introduction for a hillbilly from Kentucky, I'll tell you what, I don't know. You make me sound more important than I am, but [crosstalk 00:03:52]
Jordan Krolick:
That's nice of you to say. So the best thing to start, because again, this is a little, I know there's a lot of people in the webinar who are experts in this space, but I will tell you just starting with students, why don't you share a little bit in your words what you do? What solutions do you solve for people, and how do you get, what would you say is the relevancy of both Rick and Unbridle?
Rick Ormsby:
Thank you, Jordan. I would say, in its simplest form, Unbridled Capital, it helps people in the sale and financing of their companies. So for students, you might, I usually give an example so that people can understand it, because you see a lot of people's eyes glaring over when we talk about what we do. And one of the messages I'm going to have for you here is, in your careers is you start to develop them, and maybe we'll talk a little bit more about this. It's so important to, in my mind, I think become specific, and be a specific expert in something, whatever it is that you're chasing in life, and that's really what's been a big blessing to me throughout my career, is to stay very narrow in this very area of helping someone who has, let's just say, some guy or girl who owns 50 Pizza Huts it's in New Mexico, let's just use an example.
Rick Ormsby:
And they come to the time in their lives where they're ready to retire and sell this company, or they want to sell it and monetize it for a big gain, or they want to buy out a partner, or they're looking to recapitalize the business to help them grow and acquire their neighboring franchisee. And so, that's what they do when they call Unbridled Capital. We keep a Rolodex of not only the process of selling a company or the process of financing the company, but also how to find the capital, and how to find the best buyers to do it. And when you're doing investment banking in the franchise business, it's a different transaction, because it's not just selling one company from, let's just say you own a chemical plant, and you're selling a chemical plant from the person who owns it to someone who wants to buy it, whoever that might be.
Rick Ormsby:
There's typically not a third party, other than a lender who's involved, and maybe some landlords and such, but the franchisor makes the franchise relationship very unique. And so, that's why this business and the process of selling and financing franchise companies is unique and sometimes a little more complicated, because there is a franchisor that holds the brand in their hand, and the rights to that brand, and they administer those rights to the franchisees, and are a part of any financing and M&A decision that happens with their stores throughout the country.
Jordan Krolick:
And so, given that, what [inaudible 00:06:23] transaction, maybe that's one of your favorites or something from the past, and you don't have to give company names, but that would really bring it home of where you came in, things happen, hopefully a positive result. I always like to share stories that actually work versus ones that [crosstalk 00:06:37].
Rick Ormsby:
True.
Jordan Krolick:
Although, I'll tell you, my most favorite deal is that, McDonald's we didn't buy Krispy Kreme, a great company, but in 2002 it wasn't worth the $3 billion that they wanted us to pay for it. Now, it's still a great company, but share something from your end.
Rick Ormsby:
So I'll tell you a couple of transactions we worked on. You want to hear about the first one?
Jordan Krolick:
That'll be great.
Rick Ormsby:
Because, I think it'll maybe paint a picture for your students. I left Yum! Brands in 2005 after working there almost three years. And I came out of MBA school, and I can tell you a little bit about the story in a little bit if you want to hear it. But, I made my way to Yum! Brands, it's an interesting story. And then I left Yum!, and I saw a need for these small franchisees to have help in selling or financing their businesses. They might have owned at the time three or four restaurants, and they didn't know where to borrow money to do a remodel to refurbish their assets, or maybe they were about to retire and had no knowledge of who might want to buy their three or four stores.
Rick Ormsby:
And so, the first win that I had was a little family out in Junction City, Kansas, who owned four Taco Bells and had responded to a newspaper article in the paper saying, become a Taco Bell franchisee. And the guy was a door to door vacuum cleaner salesman in Kansas, and he answered this article, and became a Taco Bell franchisee, he and his wife. And I called them, the start of this thing I was making hundreds and hundreds of phone calls a week just trying to get to know more franchisees, and they were the first ones who picked up the phone and said, they were tired and wanted to retire. And I'm like, what do I do next? So I got to know them, and sold their business to a big neighboring franchisee, and that was the first deal that closed. And it closed when I didn't have enough money to make the next month's mortgage payment, and I had a one year old daughter, so it's an interesting story.
Rick Ormsby:
As you fast forwarded it a little bit in our lives, I would say one of the cool deals that Unbridled has done recently, there's been a lot of them, but we brought a publicly traded New Zealand company from New Zealand into the United States to buy a large platform KFC investment on the West Coast of the United States. It's a big transaction that involves several countries, some pretty difficult negotiations and timing that had a wrinkle and a flare that I really enjoy, which is working with people across different borders and different countries.
Rick Ormsby:
It's very difficult to do that by the way. When you think about franchising, if you travel down to Argentina and you see a McDonald's sign on the wall, you think, oh gosh, McDonald's is the same here as it is in Alabama, as it is in Georgia, as it is in Florida, and a lot of that is true, but the process of doing mergers and acquisitions and helping people with the financing and negotiations of those companies is very different across borders, because the laws and the rules are so much different across different countries, but that was a rewarding assignment. But, the first one's the one you never forget, the vacuum cleaner salesman.
Jordan Krolick:
That's exactly right. So when you are sitting there, you decide, hey, I'm leaving Yum!, I got a one year old, eating is way overrated, mortgage is way overrated.
Rick Ormsby:
Totally.
Jordan Krolick:
You decide, hey, you know what? I'm just going to set out and do it. Were you on your own, or did you have a partner, or did you just went on your own and just said, hey, I've just got a vision, and this is what's going to happen?
Rick Ormsby:
It's a little bit of both. I met a guy in town at the time, in Louisville, that I worked alongside for some years. It was mostly just what you would call carving and living out of the wilderness, basically making cold calls to people, and trying to establish your name and reputation with not much of a platform. And it went on to, it's a part of who I am.
Rick Ormsby:
My personality, and this might be something for your class. I knew, and I still know my strengths and my weaknesses, and I've always tried to stay away from my weaknesses, but stay hooked on my strengths as much as possible, which is I love to learn, and I love to meet new people. So my wife says, that I'm most comfortable around 800 people I don't know in a room. And so, I do, I love it. I love meeting new people and trying to figure out what their situation is, and that thirst for people and learning is what drove the business from a start of nothing to where it is today, to your point to billions of M&A work over the last few years, which we're really fortunate to do.
Jordan Krolick:
Absolutely. There's a great quote from Lin-Manuel Miranda, the man behind Hamilton who says, find your lane, and swim first.
Rick Ormsby:
Really well said. Do that, find your lane [crosstalk 00:11:15] and fail fast too, that's the other thing. You had sent me a question once that said, what advice would you give to people or to your younger self when you just started out if you could do it? And I thought, oh, what a unique question that I haven't thought about in so many years. But, one would be just that, I think, would be to find your lane quickly. And the only way you're going to do it is if you fail. You jump into things early, you take a risk, you take fear off the table, and you believe in yourself, and go for it. If you combine solid education with somewhat sound business decisions and a lot of gusto and willingness to take a risk at a young age, golly, as long as you have your morality in place, and you're not doing things immorally, a lot of people don't possess those qualities in abundance.
Rick Ormsby:
And people say that, entrepreneurial efforts and businesses fail at an alarming rate and it's true, but it's largely because people don't possess those elements together. And you might have someone who understands, who's willing to take a risk, oh, I'm willing to take a risk, but they're not real smart, or they haven't been really planned for or educated about it. And then you have on the opposite side, people who have a lot of education who are scared of their own shadow to take a risk. So if you can possess several of those attributes and have them at a young age and not be afraid to fail man, I think there's never been a better time to apply those things into business in our country, because they're in such short supply when taken together.
Jordan Krolick:
I agree. And for the people, the more professional people when we start talking about the process of the transaction, but before we get there, I'd love to hear if you're willing to share, what's a failure that you had? And that maybe at that time, you didn't even know if you would be able to recover from it, or it was just beyond disappointing because that's what, when people are scared of failure, and I've worked with a ton of people on both sides of that, when they're scared of failure, it's that, oh my God, if this doesn't happen, if this project doesn't succeed, if the area doesn't happen, if what I plan for does not hit that level, my life is done. My work career is over. My ability to get into this school, or that school is done if it's a student. What's something that you've done, and then share how, and hopefully you pick something because you clearly recovered from it, that reflects that recovery.
Rick Ormsby:
I would say, I don't have a real, easy answer here, but as I think back to some difficult times, I guess, I would say the great recession that we went through in 2008 and '09 timeframe. You know what, let me go back to a pre-investment banking example that I think will be applicable here. When I went to MBA school at Vanderbilt in 2001, I was going to be a private wealth manager, and I was going to change careers from engineering and invest people's money. I get into MBA school and guess what happens, the twin towers go down and all the financial companies are in awry. No one is hiring anybody. So I make this decision I've got to do something different here, so I jump into some equity research firm at the time, and I start volunteering at 4:30 in the morning for free to learn a little bit something about the restaurant business. I'm like the restaurant business, what's it? So they're writing stock recommendations on the restaurant business.
Rick Ormsby:
I just jumped in and started doing it. And lo and behold, a little bit later I took this example of of going to MBA school and having a decision, which was maybe not a failure, but it was an unplanned poor decision on timing. And I was like, how am I going to get a job? And what did I do with it? It just so happened that Yum! Brands was coming on campus to hire. And they said that tacos, pizza and chickens sell well in a recession, and then I was able to get a job with them. I think that's maybe an example, maybe not exactly to answer the question, but it takes a bad situation and turns it into a good situation.
Rick Ormsby:
And I've never been one, and maybe it's because I'm more of a person of action and I have selective amnesia I would say to your students, is I don't really think much about failures when they happen. If something doesn't go well, I always know I've tried pretty much as hard as I can try. And if it doesn't go well, I just keep moving forward. I just always have to have been that way regardless of the situation. So the great recession was clearly another one, where we had a lot of companies were no longer bankable. A lot of these businesses, especially franchise businesses were struggling for same sales and performance was really poor. People who are listening to this who are franchisees certainly know.
Rick Ormsby:
And then a lot of the deals that happened during that time ended in, ultimately there were some people ending in bankruptcy, deals going in poor directions. And when you represent deals when there's distress, and people don't end those transactions amicably, and there's bankruptcy afterwards, it really does wear on your psyche and your personality for a while. But like anything else, it's when you learn the most, so you keep your chin up and your head down, and you just plow through it, and learn from it.
Jordan Krolick:
Now, that's [inaudible 00:16:20] in university you do a lot of case studies. My favorite of the HBR, Harvard Case Studies, and the company starts here, and it does this, and it ends up here, and everybody knew it was going to happen. When all the reality of success starts here and then it goes like that, and then somehow you end up there, and that really is where things happen. So if you think that, hey, I can write this plan, and it's going to happen exactly like that plan, even Chipotle when it was owned by McDonald's, for its brilliant dessert, it didn't go exactly to plan. [inaudible 00:16:53] asked the leadership, and probably they're exactly where they thought they would be. But I can tell you, if you talk to them over a couple beers they would say, the road was very hard, and there were a lot of things that caught up in the way, and you'd fight through that.
Rick Ormsby:
Jordan, there's a lot of beauty in the consistency. That's one of the things I really admire as I get older in people, people who can do things well. It's easy to do something well once, but to do something well consistently, over and over and over again, without knowing what the outcome is going to be, but to do it with excellence and consistency, I think that's the key. You're talking about, you may start way down here, and we know that we're way up here 15 years later. How we got there, well, darn it from day to day, I don't really know, but you do it consistently and faithfully and you stay with it. You pick your lane, like you said, and you keep slamming. It's great.
Jordan Krolick:
That's perfect. So walk us through, I'm an owner, and it's time for a change, whatever that reason be. I've reached an age or I've reached an interest level, but it's time for me to be a change. And what I like to say people in corporate is, people quit on a company and then six months later they're caught, because either they're still working for that company, but their interest has gone down, or something is, and it takes six months for people to catch up. Well, good owners know when that time is, hey, you know what? It's time for you to do something different. So starting from there, and then ending with, I just cashed a big check. How do I get from one, using Unbridled, using Rick, how do I get from step one to step 1000 without having to go through a thousand, but step one to step 1000, and how does that process?
Rick Ormsby:
Glad to. It's funny, when they get to the point of I'm ready to do this, there's usually one common phrase that I hear every single time and it's the same phrase, and darn near over 250, 300, 400 clients, it's the same phrase I hear, it's one thing, and it's I'm tired. When I hear the word I'm tired, I know that the owner is ready to sell their company. The ones that say, oh, I'm ready to sell it if I can sell it for X, Y, Z price are not the ones who are ready, it's the ones who are tired. And usually when they're tired and it corresponds to a great time in the marketplace when the prices and are up and there are plenty buyers, then the magic really happens. But when people want to hire Unbridled, they'll come to us and they'll say, I understand you guys help sell franchise companies, and most of them are restaurant companies.
Rick Ormsby:
Many of them, [inaudible 00:19:32] increasingly, we're working outside of the restaurant space. To give you a perspective, if we did maybe, oh, let's call it close to a billion and a half dollars of business last year across 35 transactions, those are rough numbers. That means that our average deal is between 40 and $50 million, 35 and $45 million per transaction. Someone would come to us, sometimes bigger than that, sometimes smaller than that, sometimes in that price range or that value range and they'll say, I'm thinking about selling my company. I'm tired. I hear the market's pretty good. A lot of my franchisees are selling around me. What's it worth? I don't really know. And I increasingly hear that my partner, my neighboring franchisees and those others in the industry, I see the headlines all over the place, are selling their companies to these big fancy PE firms, and family offices in New York, and Chicago, and LA, and all these other places, Dallas, and maybe Atlanta too, really, you guys got a big base of franchising.
Rick Ormsby:
We can talk about that in a minute, so I want to know what the value is, and what the options are. It used to be back in the 1980s when I was operating, you'd knock on the franchisee nearby and you say, hey, Bill, you want to buy my stores? I'm tired. And then Bill would buy the stores and you'd write it up on a napkin, but increasingly as the sophistication and the prices have gone up the access to the buyers and the money to do it has been more difficult to find. So they come to us, we tell them what the value of the business is. Then they look at us and they say, and then I say, is this valuation in your range? And we work with their CPAs to determine the after tax effects of selling the companies, whether they have, or don't have real estate.
Rick Ormsby:
At that point, the franchisee says yes or no. And we need to, it's clear. It's very important that you know that we close over 90% of the assignments we take. And it's one of the main things that I constantly talk about in what we do, because it's so rare for someone to, for a company to be so successful. A lot of that comes on the front end when we're able to just talk with the client and hammer in what their expectations are. Everyone thinks that their house, their car, their business, whatever is worth more than it's really worth. It's just one of the principles of human life. But, once we align on the value of the business, we take it to the market. We confidentially show it to anywhere between 15 and 10,000 buyers, depending on what type of a process they want to run, how confidential they want it to be. We form an auction process to get the best offers at the best price and the best terms, Jordan, you certainly know about this, and-
Jordan Krolick:
I always lose.
Rick Ormsby:
You always lose.
Jordan Krolick:
[crosstalk 00:21:57] you're not sharing, and I'm going to jump in here having been on both sides of that table. Because the job of a great investment banking firm is not to sell it for fair market value. It's to find the outliers that still are at a reasonable price that the franchisor would accept, and real estate would allow, and the lenders would allow to be successful. So you're still, it's not crazy, but you're trying to find the outlying price from a qualified buyer.
Rick Ormsby:
That's right.
Jordan Krolick:
And so, I tend to lose. [inaudible 00:22:27] pay those price, but I would still lose.
Rick Ormsby:
Well, no. If I'm approaching this either it's all my money to put into a business that I'm going to buy, or it is some of my money and investors' money to do it, I'm probably more conservative than some of the offers we see on these businesses as well. And I think there's this phenomenon in place where you have these, our country has gotten, there's a lot of wealthy people in our country, a lot of wealthy family offices and private equity firms, and they have seen that these franchise businesses, especially the restaurant ones, Jordan, are the ones that have been what? What do we call them? Pandemic proof, recession proof, explosion proof, and all these other things. And so, if you're going to hold a basket of assets, if you're like one of these family offices and you going to hold a basket of 30 or 40 companies, it probably makes sense to have a franchise company in your portfolio, especially since there's been so many success stories of people getting in the business.
Rick Ormsby:
And it was something that started really heavily in 2014 and '15, when we started to see a couple of Harvard MBAs come out of school there, an investor in New York City and buy a couple of hundred Burger Kings, and then make this really successful story, and then sell it for a huge price. And then you started seeing second and third generations of these types of folks, and now it's a more common thing, but that's what we do. And then that's just finding the, setting up the deal, and then you've got to deal with the whole execution of the deal, which is from the point that a buyer seller agree on the price to the time the deal closes, and that's got a lot to discuss in there too, but I'll maybe pause there.
Jordan Krolick:
Pause on that, because I do want to get to that. I think that would be very valuable, but I want to go back a little bit. You said before, we take it to the market. Share with me a couple thoughts on, process wise, what is there? You're taking it to the market-
Rick Ormsby:
And what does that mean?
Jordan Krolick:
Am I going to Kroger? Let's break it down to the simplest terms and say, so you've signed up the client, you've done evaluation, you've said, hey, you know what? We think that this is a good mark. You could do better, hopefully you'll get to this mark, then what? What's my next step?
Rick Ormsby:
We'll sit with the client and we'll say, through our marketing efforts, and through all these years in the business, Jordan, you get to know people and you develop a database, you develop a series of contacts across the country. We go to conventions and meet all the franchisees. We do speaking events. I advertise in some of the Franchise Times and some of the publications. You've heard, I've got a podcast called The Restaurant Boiler Room, all these ways of bringing people into the fold to be part of our sphere of influence. They would be franchisees, they would be private equity groups, family offices, franchisors, lenders, all kinds of folks. And we keep a database of, I don't know, call it 10,000 people. And so, that it becomes our network of people that we sell these companies to, and probably consists of five or 600 family offices, thousands of franchisees, and hundreds, if not thousands of private equity groups that want to buy restaurant and franchise assets, and that becomes the market that we're talking about.
Rick Ormsby:
We'll talk with a client about, depending on the assignment, and depending on the size of a business, it may appeal to different numbers of people that we don't know. Let me give you an example, so we are often hired increasingly in these new brands, maybe a tier two, or a tier three brand, defined as a brand that has, tier two, between 1,000 and 5,000 units let's say, or 1,000 and 4,000 units, and a tier three brand may be less than 1,000 units. So those are not the big names that you hear about every day, but we're increasingly getting hired by those types of franchisees, and they may be the largest franchisee in a small brand. And to them I say, I don't know exactly right now out who is the best buyer for your business.
Rick Ormsby:
We're going to have to see, and I'd recommend we go to as many people on our database as possible to get a broad distribution since you own Mr. Franchisee, call it 100 whatevers that no one's really sold before. On the other side of the spectrum, if you own six Taco Bell restaurants in Atlanta, Georgia, I can probably make the market for that only contacting 15 or 20 groups, if that makes sense. And, because of the restrictions, Taco Bell places on becoming a franchisee, it's almost impossible to get approved, and that brand is a new franchisee. And also just, I know what the prices are and we know the people somewhat nearby who will pay those prices, so that's what's making the market is. And so, there's several iterations of figuring out with a selling client, what type of business they have? What size it is? What brand it is? Does it transact often or not? And then developing this idea or this plan about how many people we need to go to in order to find the right types of buyers at the right price.
Rick Ormsby:
And the last thing that you ask yourself and you ask the client too is, how important is confidentiality here? Because, if you only go to 15 buyers, you can knock on the door quietly. Everyone signs a confidentiality agreement to see the materials that we provide in the sale of these companies, but it is true that when you go to thousands versus teens, there's greater chance that confidentiality leaks, and then somehow some way a franchisee's organization gets impaired in some way when they find out about it. So confidentiality is a key consideration too, and figuring out what size of a market to go to, if that makes sense.
Jordan Krolick:
So it essentially sounds like one of your skillsets is that you make a very inefficient market efficient, or more efficient. But for example, how did you find out about the New Zealand company? How did they become part of your sphere of influences as you described?
Rick Ormsby:
That's a good question. Well, they happen to have franchise holdings internationally and we had gotten to know them at a convention, and through a connection with a franchisor, an indirect way, and sometimes it works out that way that it's that, oh, I knew a guy who wants to buy franchises and then I get an introduction to somebody, and then we don't talk to the person for three years until some sort of a transaction pops up that they want to see. I don't know if that answered your question or not.
Jordan Krolick:
It does. It's a very good answer, in fact. And so, one of the things we talk about in this class, and again, it's not exactly franchising, but it's more about working, whether it's a corporate or franchising, working with people, is one of the things that I would argue that you may [inaudible 00:28:45] across, and I'd like you to share with us some stories or some thoughts about that. Is a lot of your clients, if you told anybody, and you said, hey, listen, it might not be this, but in the typical, I'm going to sell something that's your life's work. I'm going to sell something that you probably spent more time at than you spent with your own children. I'm going to sell something where you don't know, maybe you're going to stay on and you may have new bosses, I'm going to sell something that you're going to walk away from something, and you don't even know what the next stage of your life is going to be.
Jordan Krolick:
So you're going to take somebody with all of these challenges, and it could probably take even the nicest, most gentile person and make them a son of a gun to work with. It's just because there's so much change, and unknown, and fear, and probably has a spouse or she has a spouse that is also in the ear saying, what are we going to do? What is this happening? And you got to try and make as much enough money that it can allow you the choices to do that. How do you work with your clients in that type of an environment? And maybe it doesn't happen, maybe I'm misguided. But, I do know from my past that, that seemed to be a common theme. I don't care as much about the theme as I do, how do you work with those type of people? Because, some of these students are going to find that even in corporate if somebody's deciding the next stage of their life, or if they do something entrepreneurial with one of their clients, something similar you've done, but share some thoughts on that.
Rick Ormsby:
It's great. You said something that really struck home with me. It's in many cases to paraphrase what you said, this asset that they have, this business that they own is is the most important thing in their life. It's more important, they daresay than their faith maybe, or their wife, or their husband, or their kids, it's literally the most important thing in their life. Because, if you look at it, look at the amount of the time that they spend working in it. And when you're, gosh, when you're an entrepreneur, goodness gracious, I don't know the difference between work and non-work. I don't understand anymore of the difference between them. When I breathe, I work, and when I breathe, I don't work. I think part of it is understanding the psyche of those types of clients.
Rick Ormsby:
I would say, it has helped me in my career. And the advice that I would give is that, you got to live in the shoes of those types of people to understand their ups and downs. It's been one of the driving reasons why I love this business so much, because I've sat in their shoes, not maybe exactly the same way, but I've started a company. I've stared at the ceiling at 3:00 in the morning and wondered how in the heck to make payroll, or how I'm going to feed my family, or where the next deal's coming from, or you know what I mean? I've had those conversations on the back porch with my wife saying, honey, I don't don't know what we're going to do here. When COVID hit, when all the deals went on pause for three months and everybody in the franchise business was going through this panic stricken time, where there was uncertainty, and couldn't pay the landlords, and clients aren't coming around to eat in their stores. I understand innately because I am part of that. I understand how they feel.
Rick Ormsby:
And I think that's maybe the big takeaway I'd give you is that, the other thing is I have a genuine interest in these people and their lives, that would be another thing. I really, really love franchise businesses, I love them. So therefore, when I come aside a franchisee who owns a company and they're going through the emotional nature that I know they're going through, I think it helps when they know how much I love what they do, and where they came from, and what they've built. And then maybe the other thing I would tell your students is, they've got to trust you. And presumably that's the reason they come to you anyway. But, if they just come to you as if you were like a real estate agent, and they're not laying their feelings on you, you never really get to know the client, and you can't successfully defend them when you're in the trenches and you're trying to get a deal closed.
Rick Ormsby:
So they've got to trust you, and trust you beyond, I won't tattle tail on you or share your numbers with somebody, but trust you with my... I know it sounds silly really, but I want to hope that that our clients would trust me. They would tell me things that they wouldn't tell their own spouse, not that they're hiding anything, but to almost become, it's not really a financial advisor to someone, it's like a weird mix between a psychiatrist, a friend, and a business advisor. Does that make sense? It just so happens that we're selling franchise companies. Could be any other, we could apply it to any other type of businesses as well.
Jordan Krolick:
I'd love to dive deeper into franchises, we're supposed to speak about that, I guess, what is unique or interesting, challenging, worrisome about the franchise space today.
Rick Ormsby:
So unique about it, worrisome and challenging. So do you want an answer like the sky's falling, or things are awesome, or just shoot from the hip?
Jordan Krolick:
However you think.
Rick Ormsby:
All right. There's a couple, I think of things as a seesaw. Remember you being a kid on a seesaw, and you're over here, and then you're over here, so the good things about franchising, and then we'll talk about the challenges in today's marketplace. They're stable cashflow businesses in many cases, I talked about the fact that they've done really well in many cases since the pandemic started, now, that is very much to QSR or quick service restaurants, casual diners, fast casual businesses, gyms, and some of these other types of franchise businesses really took a little while to come back, because they had the restrictions to be inside the locations.
Rick Ormsby:
But all that aside, the franchise business has performed really well. It's not a tech company that's going to hit home runs out of the park, but it's going to give you a consistent single and double. And the other thing about the franchise business that I like, clearly is that you have a lot of the consolidation opportunities that are ongoing. It's still a largely fragmented marketplace where you have these clusters of franchisees across the country, which provide opportunities to consolidate and grow, and that's been a big piece of it. What I would say are challenges? We have some major challenges in our industry. One of the challenges in our industry is going to be we rely on, it's a very labor intensive business that not only requires a lot of labor, but a lot of low wage labor. And so, it's very difficult to attract and retain good people.
Rick Ormsby:
But, because the nature of the model is just one that doesn't pay the most. Coincidentally, I think we're going to see a lot more automation in the back of these restaurants in upcoming years, because once they figure out how to automate some of these tasks, it just doesn't make sense once you get the cost down to continue to try to attract and retain employees who are 200 and 300% turnover in a year in the back of a restaurant, it's just hard to do. It's hard to manage a company. So we've got that going on. We've got commodity risk in the business, which is clearly something that is a risk. We just sold a Wingstop company for example, and Wings, my goodness gracious, I don't know if you follow them, but they go up and down the prices of those things. It's more expensive than gold. You know what I mean? To buy Wings.
Rick Ormsby:
So profits can be badly skewed by inflation on the food side and on the labor side both. When you're in this business and you're talking about the investment banking side of it, we're pretty attune to capital gains taxes and interest rates. Those are a couple of things that we care about. We care about the macroeconomic picture of our country. When interest rates get really high, the prices and the values of the businesses that we sell get lower. And then when taxes or extreme types of governmental legislation comes in place, typically it impairs the ability of a franchisee to make the return on the sale of their company that they'd want to make or a distribution to their partners, and it locks up the process of doing that. So, I guess, every business succumbs to that at some point in time.
Jordan Krolick:
That's exactly right. When you talk about the profit of the franchisee, comparing to the profit of the franchisor, how much today is that a significant hurdle? It's a zero sum game, there's only so much money a restaurant can make. And so, it's got to feed two mouths, one being the franchisee, and one being the franchisor. When you're looking at these companies, how is that relationship, is it very dictated by systems or have all the systems really embraced? Even if they say they're franchisees, they love franchisees, even if they have thousands of stores, do they all love franchisees? Do they all have that same type of situation, or how does that work and then how does that impact your job if you've got to sell them?
Rick Ormsby:
Gosh, it's a great and thorough question. I guess, I would say just for the class, the franchisee is operating, let's take the example of one store, let's call it a whatever restaurant you might choose. They will pay both a royalty and advertising to the franchisor, and that's the primary way what's the franchisor collects their money. They'll collect the money for advertising and they will spend it on the commercials, and the social media, and everything that you see. And when you collect it across six and 7,000 stores, in the case of these big franchise brands, and you multiply an average store that doesn't have a million and a half in sales x 5% marketing, $75,000 a year x 5,500 stores across the country, you get a really big advertising budget. But the main way in which a franchisor makes money is collecting the royalty. And they take the royalty, four or 5%, 6%, 6.5% of sales. And then they typically provide the services.
Rick Ormsby:
They administer the trademark. They do all of the inspections. They will do things like, come up with remodeling programs, make sure legal processes are followed, make sure that the franchisees are in good standing. There's lots of they provide, the food, contracts to the franchisees, they do all these things. The franchisor makes their money off the back of the franchisee, and it's a very profitable thing. Because, in general, you get about 80%, maybe more or less profit from every $1 of royalties that you take from the franchisee, depends on the brand. So the franchisee franchisor relationship, because of that, and the franchisee has the right to operate the brand, and the trademark, and to use their recipes and to be with the program, it is by nature, somewhat of an adversarial relationship. It always has been. Back in the '70s and '80s, especially in the '90s, you saw it that it was so adversarial that it would result in lots of litigation.
Rick Ormsby:
And this is what caused a lot of these franchisees to group together and form associations, so they could have almost like a union of strength that could fight the franchisor collectively, because they were indifferent. The franchisor is worried about getting paid their royalties and administering the brand, but the franchisees make their living and feed their family off of the stores that they operate and the profits they make. So, in recent years you've seen the franchisor take the approach of trying to really reduce the number franchisees in their systems. They want larger franchisees of more units that they can control and have less administrative cost of going throughout the country. For example, there was a time in KFC where there were 600 franchisees and now there may only be 250, if that makes sense.
Rick Ormsby:
And just think of how the average size of the average franchisees more than doubled, or almost triple during that time, and the administrative cost and hassle of keeping up with standards across all these franchisees really gets lower. So the franchisor franchisee relationship's always in flux. The franchisor is pushing for the smaller franchisees to exit, so they can put these businesses in the hands of larger, more well capitalized groups that they can pressure to grow through new units and to remodel the restaurants, and that tension though continues to be there.
Rick Ormsby:
And it usually flares up in two different times, when sales are really bad, the marketing is going really poorly, and the franchisees aren't making any money, that's a time when the franchisees and the franchisor are typically fighting. Because then the franchisee says, I don't want to listen to you anymore. Your programs aren't working, your marketing's not working, I'm not remodeling my stores, and that's one time. And then the other time when you see it really flare up is when the franchisor is a little too big for the bridges after a period of really good sales growth and profitability, the franchisor [inaudible 00:40:57] out a big old fat goose and says, you're going to do this, you're going to do this and you're going to do this because I'm the best. And then you see the franchisee fighting back and saying, no, because it's not profitable.
Jordan Krolick:
I know this is perhaps a little bit outside your lane, but I think you have a great perspective having seen so many companies, what makes a good franchisee?
Rick Ormsby:
Well, I think, the first thing that comes to my mind, again, I'm just shooting from the hip here. The first thing that comes to my mind is, I've always thought franchising as the embodiment of the American dream. It's a story that embodies Americana. It takes the dude in the pickup truck in Wichita, Kansas, and that guy, or that girl, or that family who is this rugged entrepreneur type of person, but needs a little bit of direction. Someone who's not a yes man, like a corporate person would be, trying to get the next promotion, but is not so far out there as a slosh buckling entrepreneur that they're just not willing to listen to other people, because clearly you have to do that as a franchisee. Because, although they're not your boss, the franchisor kind of in a way is your boss.
Rick Ormsby:
So I think the perfect franchisee is someone that you would say embodies the American dream. Someone who embodies a lot of what Americana has to offer, what you read in on the newspaper of people who start successful businesses. You have to have self starting people who are willing to work hard and take a risk with some direction, but with a lot of ability to overcome fear. So many stories I've heard, so many of them come from guys who will tell me, I didn't even have enough money in the till to be able to give change to my first customer when I opened my first store. And I heard a story recently about a guy, and I love this gentleman, he had to go borrow money from the hotel next door just to be able to give change to customers the first time he opened his store.
Rick Ormsby:
And so, you have to have that. Now, like I said earlier, I think it helps to be smart and to have this thirst to learn, because a lot of entrepreneurs who become franchisees, at least in the old days, were just risk takers, and they weren't also learned, and calculating, and smart and knew how to get to capital. And I think the marrying those two things is a really good thing for the industry. But at the same time, there is a little bit of bad news for the industry, I think. As the industry becomes more and more consolidated with these umpteen hundred unit franchisees, the people don't know those big companies out of New York that may own 200 Arby's in Kansas, wherever it is, they don't know their stores. They don't know the people in their stores. They don't know the band director at the high school and those sort of things. And so, they lose touch with what it means to be that slice of Americana, and I think that's maybe a bad outcome amongst the many outcomes in this industry as we move forward.
Jordan Krolick:
I agree. And so, I'll end with two questions, and then I'll open it up to kids here who I know have a few questions and so on and so forth. Is it easier to sell a good operating franchisee or a poorer operating franchisee?
Rick Ormsby:
Oh man, well...
Jordan Krolick:
I know what I like to buy, unfortunately it's [crosstalk 00:44:15].
Rick Ormsby:
Theoretically the answer is, it depends. If you think about the stock market, Jordan, so if you think about the stock market, some people are growth investors and other people are value investors, So it works like that. I would say it is easier to sell a good company as long as the expectations are in line with the company's value and they're not inflated, I think that would be the case. The problem with selling a really good company is, if you're selling a really good company, these margins are really, operating margins, EBITDA margins are really good, it becomes difficult to sell it at the price the seller wants, because most buyers look at it and say, I can't improve it at all. That's part of it, but I would say it's easier that way.
Rick Ormsby:
When you get into the selling distress companies or as companies that are performing very well, the problem becomes its hard to finance those deals. And when it's hard to finance those deals, you live with all of these contingencies and you never know that you have assurance that the deal's going to close. And ultimately if the capital doesn't flow to the deal, I don't care who the buyer is, it's not going to close, and it makes it more arduous.
Jordan Krolick:
Well, I can't thank you enough for your time. I'll thank you again and again, but I would like to ask one last question, which is we talk about personal goals, personal objectives. Where do we see Rick five and 10 years from now? Where do we see Unbridled five and 10 years from now?
Rick Ormsby:
You're kind Jordan, thank you for asking me that question. I'm 47 years old-
Jordan Krolick:
You're still.
Rick Ormsby:
... young. I'm young. I'm still, [crosstalk 00:45:46]. I don't feel so young. Look at me, man. I do have a tan right now. I Just came back from the U.S. Virgin Islands, which was a nice trip. But, I'm 47. I'm still probably the youngest or one of the youngest owners of a business like this in the country. I'm not tired, and it's only really because I love what I do. I wake up every day and I love what I do. So I don't see much changing with Unbridled in five to 10 years, maybe in 20 years. But I would say, I measure the success of our company based on two things, the success of our clients as measured by the percentage of deals that we take that we close, and then the growth of the revenues of our company.
Rick Ormsby:
And I think I'll just continue to work on those two things for the next five to 10 years. I think you'll see us hopefully get into more brands. When I started this company, we were really primarily a [inaudible 00:46:36] brand company. We would work in KFC, Taco Bell, Pizza Hut, and we'd do some work in Sonic. Now, last year we did work in a dozen different brands. So I want to be planfull about growing our platform in a robust way into other brands, and then taking on larger and more complex assignments as we do. But I just keep my head down and keep going with it. I suppose that's not much of a plan, but that's it, five years and 10 years.
Jordan Krolick:
Usually, and hey, and I can't thank you enough, so let me open this up. If anybody online wants to post questions, we can read those. So, but I'll ask you guys just [inaudible 00:47:09] and raise your hand, and through the [inaudible 00:47:11] I'm sure you can hear it, and if not I can repeat it.
Ethan:
Hi, Rick. My name's Ethan. So, knowing everything that you know now with where you are today, going back to middle of college, or getting right out of college, what would, if anything you have done differently?
Rick Ormsby:
Well, it's a great question, Ethan, thank you. Maybe, my playbook was this Ethan, so I'll tell you my playbook and then maybe I would have done not much differently. But, my playbook was, get as much education as possible, work for a large corporation for two or three years, then go off on my own, because I didn't have, I still don't have faith in large corporations in our country. I have more faith in my own ability and my own, you know what I mean? And I bet on myself. I bet with my money whenever I needed to, but I would always bet on myself, because I just feel like I can make the prudent risk and to go for it. And then I stuck, always stuck at this, despite the fact that I love change, and I love going places, and doing things, and I always have stuck in this lane my whole life, so that's what I would do.
Rick Ormsby:
What I would change, I probably would've taken more risk sooner in my life. I can remember being a 30 year old guy at Yum! Brands sitting in that office and contemplating going out on my own, 30 years old man. It's old to letting her rip, so I think I might do that. I might maybe have gone at it a little sooner. I probably would've moved to a business friendly, I've always wanted to live in Florida. I love Florida here, but I probably would've moved to a place where I felt like there were other people like me, not the way I look or anything like that, but just who had the same business mentality that I wanted to chase. And I think I would probably have found mentors earlier in my life too. Mentors that, a mentor usually doesn't look or act like you. I had one who was 50 years older than me, and it was totally not even in my line of work, but somebody who spoke to me spiritually, and I was a Christian, somebody who I really looked up to.
Rick Ormsby:
So I would probably look for mentors as soon as I can and listen to them. And then maybe the last thing then I would say is, if you are built this way, I would be rabid about what you do, be passionate about what you do. Go at it with a reckless abandon, you know what I mean? Life's short. Don't be a wet blanket.
Ethan:
That's perfect. Thank you.
Jordan Krolick:
I will tell you that, I'll understand how you feel when I turn 30 in a few years.
Rick Ormsby:
[inaudible 00:49:45]
Speaker 4:
Hey, Rick, I have a quick question for you. So I know you mentioned that you're dealing a lot with people who are just tired and sometimes want to retire and do something else. How do you build that repeat clientele, so you don't have to constantly be prospecting for new business?
Rick Ormsby:
Fantastic question. I spent a lot of my life thinking about this. In my core of cores, I love people, I love franchising, and I love to sell things and I love marketing. One of the things we've done is, some of the marketing outreach that we do I think is a little unique in the industry. And I've tried to do like a lot of people have, tried to create a platform of webinars, and podcasts, and interesting content, and advertising and things like that to get the wheel spinning. I use the analogy of it, it helps to, it cuts the grass to six inches. I can always keep the grass six inches cut by the marketing program that we have in place, because it just general rates that enthusiasm and that repeat business, because people hear about us, and see the deals we do and talk about them, but I can't cut the grass to three inches without calling people and attending conventions, without doing some of those things that are a little unique and are harder to do, traveling to see clients when it's cold outside, whatever it would be.
Rick Ormsby:
So I think the marketing program starts to cut the grass to six inches, but then to get it to three inches you really got to dig hard. And it's not easy, you're right, it's not easy. But if you do it long enough and you stay consistent to it, and you get over this window of the first four or five years of doing it, a lot of it becomes repeat business by people who talk about your success who have been your clients.
Jordan Krolick:
And I'll, before I go back to my class, I'll answer one online, which industries do you see the highest, this is from Michael Catalano, the highest growth or decline industries such as food beverage versus services? Also, can you talk about the risks of starting that first one?
Rick Ormsby:
Say that one more time. That's Michael Catalano. That's an old band buddy of mine. Mike, how you doing?
Jordan Krolick:
In which industries do you see the highest growth or decline? So industries such as food beverage versus services, then second question, can you talk about some of the risks of starting that first one?
Rick Ormsby:
So the highest growth industries, I subscribe to, it's around here somewhere, Franchise Times and they come out with a hot growth 100 or something every year, and it's interesting. Take a look at that, because it'll give you an idea. There's a lot of growth outside of the franchise restaurant space right now, specific to franchising. So historically on the other side of it, some of the Casual Dining brands have been struggling a lot, so those are the ones that haven't been doing as well because the model's changing. And you have the model of servers and people not wanting to sit down and pay a tip, and of course, the pandemic exacerbated that a little bit, so that model has struggled a little bit.
Rick Ormsby:
So, starting the first one, Mike, if you do that, I'll say this, years ago I used to own rental properties years ago, 10, 12, 15 years ago. And the first one I bought, I can remember my wife and I were so scared to take that first loan, and you model that house, and to put it on the market, and find a renter for it, so you almost have your heart in your mouth half the time when you're doing it. But then, as you replicate it and do it a second, and third, and fourth and fifth time it becomes a lot easier doesn't it? So I can remember that from my past, and I think that analogy probably holds pretty well. It is gut wrenching at first. The one thing I tell you though is, if you can do it, if you can start a franchise business and you can do it without partners, that's always the best. If you believe in yourself, bet on yourself, don't bet on others.
Jordan Krolick:
And you added a nice little commercial. I will add in, the Franchise Times that you mentioned, Franchise Restaurant Finance Monitor, is the president of that [inaudible 00:53:35] named John Hamburger will be one of our speakers later this semester.
Rick Ormsby:
Hey, Hamburger's going to, did you think you'd have a guy on there named John Hamburger who writes, and [crosstalk 00:53:45]? Come on, that's unbelievable. John's a great guy. You'll enjoy his perspectives. He's he's wonderful.
Lorraine:
Hi, my name's Lorraine. Thanks for coming to our class virtually. Going back to your point about mentorship, was there ever a piece of advice that changed the trajectory of your career or how you approached your business?
Rick Ormsby:
I've got a negative example, but I suppose Lorraine, you don't mind, do you?
Lorraine:
Absolutely not.
Rick Ormsby:
My father has since passed, and I love him. I did the eulogy for his funeral when he passed, but he was a hard man. In one point in time he said something to me when I had a failure in college, pretty big failure, a personal failure, it didn't go well. And he looked at me and pointed his finger at me and said, you're never going to recover from this. You'll be a failure for this. And I've worn that invisible branding on my chest my whole life. And anything I go into Lorraine, and I want it, I'll put my fist through a wall to go get it because of that comment, all the way until I die. Is that crazy?
Lorraine:
Crazy.
Jordan Krolick:
We have two more questions in class, and then we have one more online.
Jada:
Hi, my name is Jada. I was just asking, for your specific business, are there buyers that come in not knowing what franchise they want to be a part of? And if so, how do you help them decide which one is right for them?
Rick Ormsby:
That's a great question, Jada, absolutely they do. The types of people who come into the business these days who don't know are typically going to be big investor groups, maybe New York or somewhere else who want to invest money. They say, I want to invest 30 or $40 million into a restaurant or a franchise concept, but I don't know which one I want to invest into. Those are the discussions that I primarily have. Back 15 or 20 years ago was different. People would come into this business and they would want to buy one or two or three of something. And they would ask the questions, well, what does it take to get approved in this brand? Or what does it take to be approved in that brand? And they're all going to be like the owner operating like the model you see at Chick-fil-A, but you don't see that so much anymore.
Rick Ormsby:
And I think it's an important distinction for you guys to understand that, as the pressures of operating these businesses have increased and the profits have been driven down, it is no longer really a business that works really well, at least the restaurant side of it for a single and one and two unit operator. Really the way to come into these businesses if you're going to be a franchisee of a business, is to pick something outside of these restaurants. If you're going to be a single unit startup franchisee, like I think the Mosquito Squad, I've got a friend who does that in, I think New Mexico. He's got three employees, has a Mosquito Squad franchise, very easy to administer, something that a small business person can pick up and do it pretty quickly.
Rick Ormsby:
But these restaurant companies and these traditional franchise concepts that you see when you drive down the road, they've largely gotten too big for the one and two unit franchisee to make any money doing it, and so it's become a big person's game in that, has led itself to those types of calls where people ask, but question becomes, it becomes largely financial now. What's the EBITDA growth of this company? And what can I expect my internal rate of return to be? And if I can borrow money at [inaudible 00:57:08] plus 250 basis points, how would I pay off investors if I'm borrowing at 6%? These types of more traditional investment banking questions that you have to use as tools in your chest in order to convince them to look at one brand over another.
Jada:
Thank you.
Jordan Krolick:
Hey Chris.
Chris:
Hey Rick, my name's Chris. I went on the Franchise Times to look at the top 400 franchises, and almost all of them in the top 25 are restaurants. I know you hit it in the last question, but why do you think those are so dominant in franchising?
Rick Ormsby:
It's a good question. It all started, and also only California, didn't it? San Bernardino with McDonald's, and of course, A&W was out there. It was a big phenomenon. This idea was almost like the internet stocks of the 2000s. To have a, to what? You're going to have a restaurant with a drive through? Oh my goodness. It was a phenomenon that happened in the '40s and '50s and '60s, and it just spread wildfire. And of course, Jordan will know the story with McDonald's and some of the other concepts like it. It's a good question. I don't know why. If I think back why we haven't had other businesses that have been more, and you have hotels or other retail businesses that have been franchised. They don't have as many by unit count, but they have pretty big revenues and pretty big profits across the country, but by unit count, it's been a restaurant game.
Rick Ormsby:
Maybe the consumer trends. You see a big trend now with things like Planet Fitness, and Orange Theory and some of these fitness type of franchises, but honestly back 30 and 40 years ago, people didn't work out as much as they do now. Maybe they'd eat fast food and then they work out, I don't know, but the cultural trends have changed in our country as well, so maybe that's my answer. I don't know, maybe Jordan, you have an answer to that, I don't know.
Jordan Krolick:
Well, the only thing that I would add to that, I think you're exactly right. And we'll talk about it, it's actually the topic for the back half and see, these guys still have another hour with me.
Rick Ormsby:
Oh, man.
Jordan Krolick:
But some things aren't termed franchises. So gas stations, a lot of the large gas stations called franchisees or licensees would be on that list that they were actually termed as a franchise, same with convenience stores at times. It's just a different business model that doesn't actually make that list. You could say the same thing about auto parts stores, and when NAPA does things with distributor agreements. So some of those are like that, but Rick's right. Restaurants have been around the longest and you can't count a Coke distributor with his one distribution business. It's just this different business model. But, you see franchising businesses all over the place. It's just for true franchises as Franchise Times or The Restaurant Finance Monitor would dictate them, it usually comes in that type thing, like as Rick was saying. And so, Rick, I'll end with one question from, Johan Jobe, and I'm probably totally mispronouncing that, so I do apologize to him online. Rick, tell us about the range of EBITDA multiples you've seen trading? What influences these multiples the most?
Rick Ormsby:
Oh, that's a place where I spend my whole day. Traditionally speaking across any franchise business, you're going to see the EBITDA multiples go from taking out the outliers. There's a couple of outliers on the high side, but if we strip out those, you're probably somewhere between four and a half times to seven times EBITDA on a business. This is an EBITDA adjusted for store level EBITDA less a G&A allocation gets you to what's called a post G&A EBITDA figure. And then we apply a multiple, like you say, somewhere between four and a half to seven times typically. There's a couple of outliers. I won't name them specifically, but a couple of brands that go as high as nine and a half or 10 times EBITDA, but most of them are going to play in the five to five and a half to six, to six and a half range.
Rick Ormsby:
You apply that EBITDA number times the multiple, and then you get a price. And then what we do is after that, look at the impending mandated remodeling expenses for each store that are needed in the next three years or so, and we subtract a present value of that off of the value that we get, to get to a final price. So when we talk about those EBITDA multiples, it's important first of all that you understand that equation that I just talked about, because some people take the multiple and apply it to the route wrong EBITDA and get a wild price. So I could tell you the EBITDA multiple is five, and you and I could come up with totally different answers if you didn't factor in some of the things that I just said there. But I think there's a couple of things that I would just say in retrospect here, was thinking about it. COVID has made some people's PnLs in some people's businesses really, really strong and others really, really weak.
Rick Ormsby:
Some businesses have been up 35% in sales and 40% or more in EBITDA on a trailing 12 month basis over the last year. Some businesses are down 20% in sales, and 15% in EBITDA and are trailing a 12 month basis over last year, depending on where they're located, where you have these COVID restrictions being put in place in the various states, what the format of the franchise is, so you have to increasingly in this environment look at what's happened over the last couple of years during COVID, and come up in your mind with what a sustainable EBITDA number is. And that can be a very difficult task, in the past it wasn't difficult at all.
Rick Ormsby:
And so, sometimes that would the greatly impact the EBITDA multiple someone would pay based on the time period that they're looking at it. But again, if you're looking at a four and a half times EBITDA business, you're typically talking about a smaller tier two or tier three business, or one that's in a geography like the Northeast or the West Coast. That's a little less attractive to people who want to buy those things, or have more heavily regulated, or a smaller unit count business that has lower profitability or lower units. And if you're on the higher end, you're a brand that's really growing that people are really building new units profitably. It's usually a scalable business and it's in a good area of the country, like good old Georgia where you all are.
Jordan Krolick:
Well, hey, couple things. First of all, I would add to that too. It's a very unique industry right now, and that is totally bifurcated, little less so, but getting more we're happy the industry had the best years ever. And the other half, the casual dining out is pretty unfinanceable to a certain extent, at least in good numbers. But I will tell you, and everybody else closed their ears, 70 some of those four and a halfers.
Rick Ormsby:
They're coming. This is going to be the year. I'll tell you, say this for anyone who's listening who tunes in. I've been saying it for the last four or five months, Jordan, here's a little tidbit for you. I've been saying it for four or five months and I thought this will be the year of the Casual Dining company. And I do believe that's going to happen. They're going to have a trailing 12 month PnL that's going to look fairly good by the end of the first quarter, middle of the second quarter. And there's been two and a half years of pent up demand where they've been unable to sell their companies. And anytime if you have two and a half years of where you can't really sell anything, because it's not financeable, there's going to be a big backlog. So that probably creates supply and demand issues. There will be a lot of supply and maybe a fair amount of demand, but supply may overtake demand. And when that happens, ladies and gentlemen in the class, that means that the price goes down, and that's when Jordan's going to attack, so there you go.
Jordan Krolick:
Just hoping for one of those tier ones in Georgia. And we had it for, well, in all reality, this has been exactly what we had hoped for. You're amazing. A great start to the program that we've been building up here, and we can't thank you enough for your time and for your efforts tonight, we really do appreciate.
Rick Ormsby:
I've enjoyed it so much, and I wish your students the very, very best. Tell them to go get it, man. We need them, we need those kids, those young adults to go get it and build this great country of ours, don't we?
Jordan Krolick:
Absolutely. They're nodding their heads. I really appreciate.
Rick Ormsby:
Thank you.
Jordan Krolick:
Thank you and have a great evening.
Rick Ormsby:
You too, Jordan. Bye-bye guys. Thanks so much for entering in the boiler room today. You can find our podcast on iTunes, Google Play, Stitch, or Tune-In and Spotify. If you like these podcasts, please listen, rate and review. I also encourage you to visit our website at www.unbridledcapital.com for the best franchise M&A and financial resources in the industry. Our website includes webinars, podcasts, videos, white papers, and a list of our past M&A transactions. Please note that neither Rick Ormsby, nor Unbridled Capital Advisors LLC give legal financial or tax advice. These podcasts represent opinions that have been prepared for informational purposes only. We expressly disclaim any and all liabilities that may be based on such information, errors their end or omissions there from.