Welcome to The Restaurant Boiler Room season five, episode 8. I'm your host, Rick Ormsby, managing director of Unbridled Capital, today in The boiler room, I'll Be addressing some questions that have come in over the last couple of months, including what makes a good franchise increasingly difficult. Between buyers and sellers, reaching an agreement on terms of deals and maybe a quick update to on real estate activity in this marketplace. The restaurant boiler Room is a one-stop shop for multi-$ $1,000,000 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. Unbridled capitals website at www.unbridledcapital.com. Now let's. Enter the boiler room. Well, hello everybody. And I'm excited to be here today to just kind of chat with you by the time you will have a listen to. This college football season. Will already be well underway, NFL. Too, those of you who still watch and listen to that stuff, like I do know you probably are feeling like it would never get here right, like, oh, it's a football season yet. So I. Do a little. Boys Bible study with some high school boys and man, they're all into the Fantasy Football League. Holy cow. So I'll have like big old pile of chicken wings and went to the draft. Last week, and it's kind of funny because I asked people, you know, I live near Pensacola, FL and I asked people kind of what your favorite team is. You might be surprised if you look at us geographically in. The painting of Florida. We are pretty equally situated between LSU, Florida State. Auburn, AL. And then of course Florida, because we're in the state of Florida and also the Naval Academy, because Pensacola has. Such a huge. Naval Academy presence from all the pilots here since Pensacola is where all the naval aviators come to get their initial training. So it's this. Funny and weird mix of people when you start asking like. Lose your team in college football. And you know, just all these teams. And so you have kind of like. There's no more than like 20% of the crowd will answer for one team, so it kind of makes it fun, but I hope you guys are enjoying the start of the fall. It's been a warm one. Just a. Quick update here. On unbridled side, I mentioned it a little bit maybe on the last podcast that you heard, which is going to be the webinar. And by the way, a big shout out you know. To Nick Cole of MUFG and Mike Egan of Snow. Bank, who did our last webinar with us that we just put into a podcast. So you've probably heard it if you listen to the last podcast, I think it's season five episode 7. So if you haven't, please do check it out because. It has some really good information that we kind of wrap at length about the status of the lending market and the M&A market and our economy and all those things that kind of affect how you might buy and sell and finance a restaurant or a franchise business of some kind. So it's a good one, but I might have repeated myself by saying it, but just a little update like I would normally give in the last like. 60 days or so we've. Unbridled sold 28 Taco bells and you know in the New Orleans area, 12 Taco bells in the Arizona area. And then like over 20 wing stops, I believe it was around 20 wing stops in the Ohio. Area good transactions, lots of buyers, good financing terms, you know, really strong interest those. Are both pretty high. Profile brands right now, they're really doing well, right? Everyone loves Taco Bell. They're kind of the darling of our business. You heard me say that before. Wing stop is just had an incredible run. They've just been killing it. You know, with low wings costs rollovers like they have really unlike the rest of us, I suppose they've had that the opposite of food inflation right now and they have really good wing prices. Sales are up a lot because you know, largely because of demand, but also they raised prices quite a bit last year when when prices were high and that's one of the little you know it's kind of a sidebar you know the prices are really high. Right now, both for consumers, when you go to buy a franchise stuff, right, like you go buy a hamburger, you go to buy a shake or you want to buy. You know, Taco or whatever, you're gonna get pizza. Whatever it is like, the prices are going up, right. And you might have some a little bit of sticker shock. I know. I kind of do. It's my job to go. What a fun job. Right. But, you know, it's my job to go eat at a lot of these places and, you know, and to use the services of a lot of these franchise locations because I got to know about it for my job. And so I've noticed it myself. You know, I've noticed the prices have come up. But for those. Who are both investing and operating and also considering such thing? Within the franchise space, at least in restaurants, beware that in a good way that you will see kind of a wing stop situation at some point right where you're going to have. We're going to have, you know, some deceleration of food cost inflation and maybe probably at some point I don't know when it is. There are others who know more. About this than. Me in the industry across most brands actually have pay consultants who. Do this but. You know the commodity costs will eventually reverse in maybe 18 months and they will, you know, hopefully go down, right, not just like the deceleration of food cost inflation lessons, but. Actually, the cost of food actually drops and when that happens, hardly anyone I know is reducing their pricing, right? So at that point in time, you should see some major EBITDA increases like the wing stop people have seen this year because sales will be strong and to hurdle all the fixed costs. And then all of a sudden the cost of food drops, that's our hope. Right, that's. And then probably what you see is you see probably a shortened period of restaurant operators doing pretty well financially and that could be the time at which some people decide to sell their companies, you know, because their EBITDA will be up at depending on the market conditions. But then typically what you see at two and this is of 20 years of experience seeing it is you see. Companies getting out in front of the franchise or starting to do discounting right, they'll start discounting because they'll see franchisee profits are huge and then they'll find a way to, in many cases look at the many prices, do some consumer research at their corporate offices and they'll come to the rightful determination that customers think the prices are too high. And you'll see discounting and maybe a little bit more of a price war that happened. So that's kind of a little bit of the cycle of things, but it's been a good last 60 to 90 days close those 3 transactions we've taken on, I think four or five new transactions in the last 60 days totaling about over 300 now almost now I I guess I'm 400. May be closer to 450 locations, so these are bigger transactions that are somewhere. Between 50 and a 200 locations per deal 1 franchisee, and they're in brands that I maybe hadn't expected to do business with, maybe like the largest franchisee in a brand that's smaller and doesn't have a natural buyer for them, you know, like think of a brand that might have a bunch of 10 unit franchisees and then 200 unit franchisees in the brand, right, something like that. And the 100 unit. Franchisee who realizes they have an asset that might be attractive to a larger audience than the existing 10 unit franchisees around them decides to look, you know, outside of a standard. Way to sell their company and we got a phone call, right? So we got a couple of those going and we got like 14 assignments. We're looking at a number of other valuations and totaling crazy. Listen to this, totaling 16 different brands and several of them are outside of restaurants now. So I'm telling you all this not. To pump up on bridal, but. To give you a viewpoint of what we're seeing in the marketplace. Right. So that would represent a wider swath? Of business across brands and I've seen in my career. And the size. Of the deals has maybe doubled in size. This is the deals. We're just looking at are recently taken as new assignments. And the types of buyers are a little bit different right now. So we're not seeing a whole bunch of first generation 70 year old Man franchise brands started with one store built it up to 2530 forty locations and is now ready to sell it because he's ready to retire. We're not seeing those types of deals like we did in 2021 and. Frankly, gosh, for the last 16 years before. For that, those types of clients, largely at this very moment, are just operating, have their head down, they're probably enjoying hopefully a little bit of same store sales growth over the summer and into the fall. It was a brutal 2022 with high commodity costs and high labor costs. So they're probably, you know. Tending to their farm, so to speak, and preparing their business, I think those. Types of folks. Will probably become sellers sometime. You know, maybe next year, especially if we start getting. Some interest rate. Relief. But they're going. To hopefully have a trailing 12 month financial statement that looks. Wrong, and they may kind of reenter the market. And those are always really good deals, you know, because you've got typically speaking, not always, but typically speaking a seller who is a first generation franchisee is a little more reasonable than a private equity or family office seller who is lawyered up and has all kinds of hitches to their business, not that those businesses aren't attractive. To buy, but those types of deals are typically, you know, necessarily larger, but typically going to be a little more arduous just because of all the professional folks around them. But these other businesses are definitely attractive. The first generation franchisees who sell. That's what I'm hoping will come back to the market in the meantime, right now we see largely interesting circumstances that maybe a one off circumstance. I think you've heard me say over the years that maybe there's always going. To be if the height. Of the M&A market and the franchise world. Is like selling 100. Of whatever is a business is a year, let's just say a. 100 businesses just for a round Number, right? There's always going to be 20. Five businesses that sell. At any given year, and to have. No correlation whatsoever to timing because of like good time to sell, but just 20. Five businesses, you. Know someone gets divorced or partnership splits up, or someone's ready to retire and their health is failing them. Or they lost their key. Operator and they've lost their. Heart for the business. And so they decide to sell. Or maybe there's some distress in the. Business that's not. Part of a whole franchise system, but it's just like particular to 1 franchisee. So there's always going to be in this silly example, there's always gonna be 25 deals in the marketplace. When it's frothy, there'll be 100 and then most normal times there's, let's just say for the simple number, there might be 50 or 60 deals. Right. So the world in which we're living in right now, at least from unbridled standpoint, is probably in this we were at 25 and now we're cruising up to 50 or 60, but yet the people that are selling are the ones that are largely professional firms of large unit counts or maybe second or third like, you know like. Iteration of businesses that were bought from the founding franchisee 5 to. Seven years ago. So 2 on that for. A little bit, that's just an initial observe. I do think the M&A activity will continue to increase. One of the items I've noticed over the last kind of 30 to 60 days is that the phone calls have increased in certain brands as well. So there are certain brands where I'm getting lots of calls and then others we're not getting any. And I think maybe that has to do with kind of the strength and the rebound and some of the brands and the ones that aren't getting that strength and rebound are probably sitting on their hands a little bit right now. So stay in touch with us. Find LinkedIn. I do a lot on LinkedIn so find me on LinkedIn and let's connect that way or find unbridled capital. OK, there was an article that came out here. Oh, just recently from QSR magazine. It was entitled the 17 Best restaurant franchising deals for 2023. I make no comment on the list that came up with, although it was a really well written article. I may or may not agree with all the brands that they have on the list, but it brought up an idea that I wanted to talk about with you guys. Which is what would you look at? If you were going to be going through and thinking about investing in a franchise inquiring about a franchise, this article and you can check it out for yourself. Lists a couple of things and I'll go through some of these right now like number of US franchise units. And the number. Of total units, that's a pretty cool thing. To want to know, right? So if. You have a brand that has 5000. Once in the United States and zero are franchised well, then that's not a brand that you're going to be able to become a new franchise and right, unless you can petition the franchise or which other people have done unsuccessfully up to that point. So that's an interesting one. If you're looking to acquire in the franchise space and get in for it with a platform investment, you probably want to know the percentage of the total units that are franchised. So that's really kind of a good place. To be looking. And then behind that number in that percentage, you want to say, well, who are the type of franchisees, how many franchisees are there per unit? And these are some of the things that. Will help develop your strategy. I mean, if you are looking to become a. 10 unit owner, operator and franchise. Well then you probably want to see if you either want to do one or two things you want to see that. There are other 10 unit. Franchisees that are getting approved or that are part of your system and you probably also if you're shooting for that type of an investment, you're probably going to buy an existing business and then you're going. To like develop new stores. So in that type of a model, you'd want to know what the development looks like. How fast they've. Developed what are the open development territories? Those kind of questions, right? If instead you are. Let's say you're a young private. Equity Duo 2 ladies in New York who?
Are both Harvard?
Grads and decide to start up a fund and they want to invest in a franchise business, right? Something like this. Most people in that regard are going to be like I need to have something large enough to hold and operations team and an existing management team together because I as the investor. Don't have I raised the money and I can learn about franchising and I see it as a good asset, but I don't want to manage it and operate it myself. So in that type of a situation, you certainly want to look at the percentage of the number of total franchise units, right that their total units that are franchised and. You also want to. Know that there are a lot of larger franchisees because if you can't enter easily into the brand and have enough of the store count and enough G and A to be able to handle. The management team then you may move elsewhere to look right. And so that's a really important. I mean, if you're going to buy 10 units, you're not going to be able to probably put a sophisticated management team in there and be able to afford them, right. Unless you're willing to fund kind of a loss or a very low return for a number of years until you build your unit count so that becomes important. Let's see what else system wide sales is another. Yeah, I mean, you know, system wide sales is interesting to me. Maybe less interesting to me than I mean. But it's all a math problem, right? System wide sales is basically like. Like average unit volume times, number of units. So I'm really interested in average unit volume and I'm really interested in total number of units and I'm really interested in number of franchise units and I'm really interested in the average franchisee size. OK, those are things I'm interested in also interested in geography, where is the brand penetrated? If it's a national brand. And like some of the big seven or eight or nine or ten, and they're everywhere. Well, maybe not. It's not as big of a deal, but if you're into a regional brand or one that only has 500 or 700 units or 300 or 1000 even, you want to know where it's concentrated and where it's been successful. You know, there's some brands that started in the Midwest and do really well in the Midwest, but do you try to take them out West? And no one's heard of them. And there's a lot of brands that are in the West that are really, really good. That don't make it over the mountains over into the Midwest and over into the eastern side of the country. So I think you want to think about that like in the good old days when I used to work at young Brands corporate, you know, I think sometimes we missed the mark on the strategy of like shotgunning new multi brand units throughout the country without thinking about instead staying in one geography and building the smaller brand and building the marketing. Out in the brand awareness in one market or in adjoining markets, you know. And so when you just jump across the country and you don't have a focus regionally, oftentimes it. Doesn't work really well. And if you're looking to invest in a franchise brand, you just need to pay attention to. The geography both of. Where like the. Store the business and the foundation started and the story behind how it started and where it started, but also where the franchisees and the corporate units are dotted throughout the country. One of the things people always tell me if they have like a I get the calls all. The time from people who may have. Started some sort of a franchise restaurant concept or non restaurant concept and they tell me they say. I've got 10 units now. Can I sell this to a private equity firm and get a huge multiple? Because if you own the brand, even if it's a start up brand in good times. With a good. Story and a good. Trajectory those types of deals could trade at. A much higher. Multiple of EBITDA than an existing franchise business would trade at the same time. They can also trade for very little value too, if they're not profitable. If there's, you know, I tell people a couple things I'm like and now. I'm rambling but appreciate. My rambling, maybe there's something in here that's interesting to. I tell people a few things. I say, OK, if you're going to start a new brand, don't franchise it too early. I'll say that I'll say don't fail. So in other words, like if you built seven stores and two of your seven stores are not good and five of the other ones are awesome. There's too many that are not. Good, it's going. To really kind of turn off an investor or someone that wants to. Invest in the. Franchise, I say. Don't franchise too early. I see the mistake quite often where people like, say. Oh yeah, I got my. Buddy, I started a pizza shack in Raleigh, NC, and I got my buddy from Business School who lives. In Salt Lake City. And another buddy who lives in Austin and. They're going to blow it out and we're going. To go to. Those cities next, I say to myself, you. Know nine times. Out of 10, that's not going to work. Instead, what I like to see is that you build out Raleigh, be patient with it, get 10 stores in Raleigh and then jump over into whatever Winston Salem or jump over into Charlotte or an adjoining market where the brand can develop a regional reputation and grow it slowly that way. And don't franchise until or look to sell if you have the capital to do it yourself until you've proven the model really, really well in two markets. 2 separate cities or DMA's, that's just kind of the advice I always give to people and not to rush into that type of approach. So back to this when I think about the question of what. Makes a successful franchise, and if you're looking to invest in. It you certainly. Want to care about franchise averaging a volume per store? That's a big one, so. So what's the averaging of volume? Are you a Chick-fil-A that's averaging 4 and a? Half million dollars a store. You know, or are you a XYZ Froyo brand that is averaging 370? $5000 per. Store that sits in a mid cap like space.
Those are two.
Very different types of businesses, for example, right one's got like double drive through people going bonkers out the side, tons of traffic, lots of sales and profits. But the franchise model is obviously a unique one. The other one is a either A1 unit owner, operator brand or if you're trying to invest in a brand with that low of an AUV, you better be able to to develop it quickly and have a lot of them because you're counting on penny profit, right, you're you're on $400,000 in volume you're counting on. Hoping to get 15% margin which? Should be your goal. Before paying the bank, but after paying all the bills, you should be able to make 15% profit margin after paying royalties, food cost, labor, advertising, fixed costs, rent. I'd like everybody to be able to see a 15% what we would call store level operating. Hit and before GNA before, like owners salary. So to get that 15%, if you're only doing $400,000 in averaging a volume, that's $60,000. I mean, in order to build a substantial enough business to lay a professional piece of management over top of it and to. Grow it, you're. Going to have to have like 30 of. Those things, right, so. These are things to be thinking about, not. Only averaging the. Volume. But then we start looking at same store sales. How are same store sales looking? How are traffic patterns looking? Who's your biggest competitor? And how are? They performing. Can you take market share from them? Are they in your mark? It is your business. Is it a new business? How does your business perform in this brand like does it perform? Is it one of those you open the door like a restaurant and bam sales and profits are typically high. It's a big boom when it opens big grand opening. But then like it settles at 30% of the opening days. Volume, which can be depending on the brands, a pretty good number. In other words, in the first day, if you do 10,000 in sales, you may settle at $3000 a day in. Sales, once you've gone past. Your launch curve, which is typically five to six months or is it a brand like we're working in a non restaurant brand now that's a health and Wellness brand and that? Brand doesn't operate that. Way, it's one of these where. You open it. And when you first open the location, I mean it has to ramp up in sales because it's kind of a subscription or service based model where people have to like know it's open and you build customers slowly. And once you build the customers, they typically come back on a regular. But it takes maybe as much as 1 1/2 to two years to build up to that steady state volume. So that's kind of important as you look at average unit volume to some of the things this QSR magazine had in here, they also put in like franchise fee which is the initial fee that you would pay to open a location. Usually we see that. Fee being somewhere between 25 and $45,000 per store. Sometimes they can be negotiated with smaller franchisees. Or smaller franchise unit counts that you are looking to build. Sometimes people have development agreements. That's another question you want to ask and learn about. Like what's the? Whether you're buying existing and you have to have the franchise's approval, at which point the franchisor may ask you to enter into a development agreement, what does that look like? How many units over how? Many years or if you're coming into. A system new and you're looking to. Go de Novo and and start with zero and build it up to 20 units like. Can you have a protected territory while you're doing that? For how long? Long. And if you can't fulfill that obligation, can you have outs on it that don't impair you financially? And so those are questions to ask, royalty is always. Something you want to? Know, you know royalty is, you know, is typically somewhere between 3% and 8%, but it. Could be higher. Or lower than that, depending on type of franchise brand. And then how's it paid? Typically paid monthly. And then there's usually some sort of an advertising and marketing. See some of the new brands have there's all kinds of an array of ways to do the marketing and advertising. If you have some of the big brands of which we spend most of our time, it's a set percentage that's somewhere usually between like 4 and 6 1/2 or 7%. Most are in like the five to 6% range and that's just paid. On a monthly basis, in many cases to the franchisor. And that's for all the marketing that you see across the country for the. Brand and you know, in smaller brands, they don't have the clout to be on TV with advertising. So they're typically collecting either a smaller marketing fee as a percentage of sales, but they have maybe in their FD a way to increase that with unilateral or not with unilateral control. It depends on the franchise agreement depends on the franchise or depending on how many units there. Aren't right. In other words, we only have 100 units and we're only going to ask you to spend 2% of sales and remit that to us for our marketing efforts. But if we get to 500 units or if we get to 1000 units, that number is going to roll to 4% of sales. Right. Something like that, because there's some sort of. Kind of the kind of a line in the sand where they can hire an ad agency or they can get on TV or, you know, there's other ways to look at some of the marketing expenses. I've seen some over the years where like you can spend marketing in your market and you just have to remit the expenses to the franchisor and they have. To like and then they pay you. Back for the marketing that you have. Bent. That's something you see in smaller brands. As a way for the franchise or to acknowledge that the marketing all needs to be local in a new brand, but also not fully trust the franchisee to just say, oh, I spent the money on marketing. So they collect the money and then the franchisee sends their expenses to them and then they were sent the. Money back to. Them and then. I think you see a couple of other things you want to kind of do a look at the amount of M&A. Activity the success of the people who've. Gotten involved in? The brand in the recent past, you probably want to look and see what type of franchisees are getting into the brand. You want to look at. You know another is the cost of opening units. That's a big one. So most FD's are going. To have like. A really wide cost. It's going to be very wide and so my push back is to try to get specific right someone and say. Oh, it costs. Somewhere between a half million and a million. Two to open these locations. Well, help me understand that. What's the difference in the cost there? Why is that cost so different? Can you show me examples? Where are the majority of? The cost? How are? The costs allocated and that's obviously a big piece of being a successful franchisee is understanding what it cost to pop open new stores. And then lastly, I'll say that. You have quite a few of incentives for new development, especially in today's world, because franchisors are back on the development push, right? But the cost of development is still outrageously high and labor is really, really expensive. And ohh, by the way, have you seen what interest rates are recently, right? So people who are good operators and want. To build new. Units are having trouble fulfilling their development obligations because the cost of opening a new store is really, really high and real estate is hard to find and interest rates are high. So you want to see if there are incentives to build new units, a lot of franchisors are going to give you some incentives if you're in some of the smaller brands that really want to be a firestorm and get the new unit development count open so they may discount royalties from 5% to 3% or 2% for a period of years, you know and kind of burn it off to get back to. Normal to give you. You know some breathing room as you start in your units and to encourage you to do it some franchisors. Will kind of. Refund will not not make you pay marketing dollars, right? Or you know, suspend your marketing fees or your royalties for a certain amount of.
To recoup the cost.
Like the first $100,000. Of a remodel or. Maybe a new unit that's built?
These are all.
Hypothetical numbers, of course, but these are some of the things that can happen. And of course, if you're involved in a smaller brand, your ability to negotiate increases quite substantially. And I think lastly, before I move off this topic. I'd say know who your. Owner is who is the franchise? Or do some diligence on who they are, what people think about them, not only just like the success and quality of the franchisees in the space and somebody you might think about like being in high school. Did you ever do this when you're high school and like you had, like a Co-op program where, like we did at our high school, like Junior in high school and you're going to show up and go sit with some? Guy or girl who volunteers their time for a day to show you job shadowing in their profession. Right. So you want to do that as a prospective franchisee if you can. And by the way, I did an actuary when I was a junior in high school and so I had this guy I drove around with him in a car and we went to his office and he sat there and his job was basically, I mean, you know, I was only 16, right? So I didn't know a whole lot, and it wasn't real patient. But I was sitting there basically watching him calculate. The projected death of people. And I was like, I kind of like the analytics. Behind it. I love how you know. Numbers so well, but I. Don't know that I could do this. For my whole life but. You want to know who your franchisor is. Sometimes your franchisor is going to be a publicly traded company. Sometimes your franchisor is going to be a private company. Private equity backed private company that is a consolidator of brands. Sometimes your franchisor is going to be a family. Sometimes your franchisor is going to be a smaller private equity group that only owns one. Or two brands. You know, so be cognizant of that of who your franchise or is and what their motivations are. A lot of privately held franchisors are looking to sign big development agreements, get larger franchisees. In their space and crank up their. Development so that. Then they can go public. When they have a certain unit count and a certain EBITDA in their business. So these kinds of ideas, if that's what they are planning to do, may impact the way you as a franchisee may interact with them over the course of your relationship. OK. Hope I didn't spin your head too much on that topic and talk about that for like. I don't know, man. Talk about that for years, probably. Couple of other things I just kind. Of jotted down here. One would be increasing difficulty of private equity buyers and sellers and corporate and lenders. Yeah. So the question had been asked of me of how long it takes to do a deal in today's environment. And my answer is it takes 50% longer in most cases than it did two years ago. And you're like what? And it's a combination of reasons #1, if you are a seller and you're a private equity seller, typically you are a slower seller than a family. That makes sense. Right if I own. 100 tax franchises and I'm the only owner of it and I sell it. I make the only decisions. I don't have a team of people around me, an investment. Committee, lenders and attorneys hanging all over me, and I can just make the decision quickly. So when the seller is a person, a family first generation franchisee, that is like if you're just like you know, keep track of like put a notch on one side or a notch on the other in terms of like the balancing scale of how long a deal takes. So let's say a deal takes six months. From soup to nuts. OK, actually, let's say it used to be six months, and let's say now it's eight months, OK, and there's reasons. Primarily it's a little harder to get money now. Underwriting process is more challenging because the capital is not quite avail. Well, you know, the franchisor has gotten a little more stringent and a little slower either because they're under staffed or because they were coming out of COVID or wanting to be more judicious and slower about how they approve deals and maybe they're also a little bit more hungry for development coming out of COVID. And so they're going to take more time to get these. Deals approved, but let's say you're on the seesaw. And the average deal has gone from six months to 8 months now, right? Start to finish. OK. On one side of the seesaw, we have an operator who's selling the business, not a private equity or female office group. Well, seesaw that eight months goes to seven months. OK. So then we have a. Question like, who's the buyer? Is the buyer a private equity group or is a buyer or an independent franchisee seesaw? If it's an independent franchisee that eight months just went to seven months, just went to six months. If the buyer is a family office of private equity, in many cases that seven months just went back up to 8 months. Why buyers and private equity buyers, especially ones who aren't in the business? You know existing have some pretty robust and understandable. Processes they have. To go through including. Several times to their investment committee at several different. Stages to get the deal. Approved. They do lots more due diligence because they don't typically know the concept as well. They never operated it right as opposed to somebody who might be an existing franchisee of 100 units who's buying 30 more units and has already operated for 20 years and knows the ups and downs and highs and. Lows. You also have the private equity family office community. Have they have investors that they have to answer to and so they have to go through a pretty serious. Process of quality of earnings studies and they have to be really mind their P's and Q's about the decisions they make. Since it's OPM, right, other people's money. So you see the seesaw going back and forth by as much as two months based on who the buyer and who the seller are, right and so. And then you see some other things like what brand is it and how does the franchise or typically based on like someone like unbridled like we would know pretty well in a lot of brands, how long it takes that franchisor to approve a transaction and you might be surprised in the last six months I've seen a franchise or approve a deal in less than 30 days. You know, I've seen the franchise over take over six months. And that's like similar size deals, similar environment, that's how much it can change. So you might have a two-month seesaw one way or the other based on the brand you're trying to sell or buy, right. And then the financing structure also makes a difference. So you could have the seesaw going in One Direction or the other by at least 30 if not 60 days based on. The type of financing based on the amount of debt based on the size of the deal. So all these things rolled up together. No kidding, if everything. 'S on the wrong side of the seesaw that. Eight months could. Be a year if everything's on the correct side of, I mean I say the correct. Side the short. End of the seesaw or whatever it could. Be a five month. Deal. Very rarely are you going to see a five month deal and rarely are you going to see a one year deal. More likely you're going to see an 8 month deal maybe. Trending to seven months, maybe in the six months range, maybe in the nine months range, whereas before it was like six months was normal maybe in five months maybe in seven months. So there's just much more variability now. I hope that answered that. And you know, like again, I'm glad that you know, go to our website on bridlecapital.com if you want to see me talk about this or you know more than just in podcast on. Videos and webinars. And stuff. I have one more question which is going to be pricing on real. Estate and real estate activity. OK, I'm just now getting all this ginned up, but I think what we're going to do next time is we're going to have another webinar soon and I'm going to invite. We'll try to do a real estate webinar and have, like a real estate broker and then real estate investment trust on the line. And we're going to talk about what's going on in the real estate market right now. How does it impact franchises? Is it a good means of financing? What's going on in the 1031 market? You know, these types of questions. So stay tuned for that. Usually want to do that once a year, just so we all stay abreast of kind of the current cap rates and inventory in the market and things like this. I just have a couple of notes that I'd like to. Talk to you about and the the question is specifically what's going on in the franchise real estate market right now. You know, with cap rates and such. And so again, we're going to have more, you know, the next episode should have much more robust answers. Experts stronger than me in the area, but general notes are, you know, cap rates are obviously up. Most people I talked to who are in the space every day across all these different asset classes, even out of franchising industrial and commercial and retail and all these things. They're going to say, I think in general that the cap rates are probably. Worse or higher? By somewhere between 60 to 100 basis points from last. Summer now you might ask yourself, you know, so 60 to 100 basis points change is pretty substantial. I mean that's 100 basis points change on a six cap rate is like you know I don't know the number off top of my head, but it's somewhere between 15% drop in the valuation of a piece of real estate right. Most of that is attributed to the interest rate. Going up so much this past 12 months, so 60 to 100 basis points is typically the. Range so here, just as in a side note that inventory is that has stayed on the market, so people who are selling real estate, I hear that inventory has increased and that. Has hit kind. Of a a relative high in the last couple of months relative to the trailing 12 months or the last, you know, 18 months. So that's something to note. Is that a surprise? No. So people probably, you know, put their real estate up for sale. Real estate is. Priced at a pretty high rate based on a very attractive cap rate and the CAP rates have been degrading because of interest rates and the properties aren't selling because they can't be financed at a return that's desirable for the buyers. And so they just sit and then I've been hearing anecdotally too that there's been quite a bit of a price dropping activity. That's not a surprise, right? It's not a. Surprise to see. Prices drop as people try to move real estate with high amounts of inventory and with buyers saying I can't finance it and make any money, you know there's still this very, I think real effect of people, particularly in. California, who are moving out of California. They have a piece of real estate they sold and they're looking to do 1031. Don't underestimate the power of wanting to defer taxes, right? So in. That case those. Californians don't want to have to pay taxes on their money because they end up with less than 50% of it after they pay taxes on federal. And, you know, in the states. Again, it's it's less than 50% if it's all capital gains, but still it's a very high rate. So that's a very powerful motivation. So I think if you're you know a lot of those investors and people have like one or two pieces of property that they sell. So that's kind of the low end of the market. So the low end of the market may still. Will be operating in a way that's not quite as impacted by the cap rate increase because it's also motivated by taxes and an individual's taxes, if that makes sense. So that's another comment I think is the question is, are cap rates hitting their highs and going to stay here or are they going to continue to raise? And so I think the jury is out, this is just one man's opinion from talking to several others in the industry. I would say it's always been my opinion that cap rates. Have increased or gotten worse with a delayed effect based on interest rates I've just seen that in the market for so many years. So if that's the case, we're still at the tail end, but we're still raising interest rates, right. So it's likely that cap rates are going to be continuing to get worse for a while after interest rates. Have stopped being raised. How much and when and how? I don't know. I'm frankly quite surprised to see deals happening at 60 to 75 basis points below last summer, which was near the peak. You would think it would have been much higher than that by. Now, but the delayed effect seems to be, you know, kind of pricing through the market. So that's my Yeomans version of what's happening on the real estate and cap rate side. Again, it's after talking with some. Folks in the industry who are. More spread out across different asset classes than I am and unbridled is, but hopefully that gives you a little bit of insight I guess. Lastly, I would say. This if you're planning to attend RFC this fall, restaurant finance and Development Conference is done every year by franchise times, and the restaurant Monitor this year. It's November 13th through 15th and it's always in Las Vegas. You know, you can Google it. I think it's like rest finance.com, but that's good conference, right. And kind of puts together all the deal makers and attorneys. And lenders and you know, some franchisees as well and some industry experts and we sit around and we talk about, you know, the existing state of the industry how to do deals, how to finance deals, how to negotiate purchase agreements. You know, all these other areas. And then we look at what's going to happen in 2002. Three last year I did a panel. It was basically like the state of the M&A market and it was well attended. I heard from John Hamburger who's coincidentally great name, right? He's the head of the RFC event. He said that it was the most heavily attended. I don't know. I looked out in the crowd. We probably had, I'm guessing 3 or. 400 people were. Watching. But we're going to do that again this year. So I'll be doing another panel. If you decide to come out to restaurant finance and development conference. Which is, you know, coming up by the time you hear this will be a couple of months away. Reach out to me personally if you like. I'd be glad to catch up with you and just kind of shoot the breeze. So thanks so much for listening. Stay tuned next time for a hopeful webinar with talking more in depth about real estate. And God bless you guys and girls. See you later. Thanks so much. For entering the boiler room today, you can find our podcast on iTunes, Google Play, Stitcher, TuneIn and Spotify. If you like these podcasts, please listen. Rate your view. I also encourage you to visit our website at www.unbridledcapital.com for the best franchise, MNA 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 therein or admissions therefrom.