Season 6 Episode 1: The 2024 State of Franchise M&A



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Welcome to The Restaurant Boiler Room Season 6, episode one. I'm your host, Rick Ormsby, Managing Director at Unbridled Capital. Today in the boiler room, I will be joined by several of our team members at unbridled capital to do a state of the Union of franchise M&A for 2000.


24 items of discussion will include considerations when doing a deal in 2024, commentary on current supply and demand for buying and selling, lending cap rates, EBITDA multiples, thoughts on inflation, sales forecasting and timing of a sale and examples of real time issues affecting M&A transactions. This discussion was.


Also, recently presented as a webinar and can be found in its entirety on.


Website 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.


Then bridal capitals website at Now let's enter the boiler room.


I'll just go ahead and get going now. So thank you guys so much for joining a couple of years ago, we started to do this webinar at the beginning of the year and we call it kind of the state of the Union of franchise M&A. And this year it's 2024. And I think it's been a pretty popular one and we kind of want to get together here. We've got some questions and some topics to discuss. Some of the topics and.


Questions have been.


Similar across the last couple of years.


And so just hang in there with us and we'll try to spend 5 or 6 minutes collectively on each question and then move along, we will.


Have if you're.


Web. First of all, I guess if you're listening on podcast, the restaurant Boiler room, you'll hear this in a couple of weeks.


I guess thank.


You for being podcast listener and we hope you enjoy and whether you're watching or listening, feel free to reach out to me or Derek.


Peter, anytime. If you have questions about buying or selling or financing.


A franchise business if during this webinar you have questions, feel free to type them in. We'll watch them and then just kind of interject. It's kind of meant to be very conversational, so feel free to do that. And then lastly, I think that no worries about getting a copy of it if you have signed up to attend or you're watching or listening, you'll get a copy of this webinar.


Afterwards via e-mail.


And with that being said, you know me, Rick Ormsby, and you know Derek Ball in our office and Peter Fisher in our office too. We're thankful that you're on board. And the first question for the crowd is this.


This Carole's announcement just came out pretty big this morning and pretty big news. It was that hurricane corporate is going to acquire carols for what amounts to be about a billion dollars for a little over 1000 restaurants. So it's a billion dollar enterprise value, 1000 restaurants. And they have have have said a couple of things. They're going to remodel.


5 to 600 stores over the next five to seven years. It sounds like, and then they're going to we franchise them. And then I think it's publicly stated that they're wanting to re franchise some or many of.


These markets to local franchisees in their communities that have no more than 50 locations. And so I guess I just kind of open it up for a couple of quick.


Comments as we get started. What do you guys think about that?


I mean they they put their their money where their mouth is. You know, we're going off of the same. We don't have any special insights that unbridled in terms of the deal. You know, we're reading this same stuff online that you all are. They've been pretty public for a year or two now that they want to have a 50 unit cap.


Up and all that good stuff and focus on small to medium sized operators rather than the big giants and I guess they put their money where their mouth is. They put a billion bucks behind that. So people say things all the time without really acting and they sure acted on it. So fairly impressive. We'll see how it works out and plays out over the next.


Five years, though, yeah, great.


Shocking but impressive and exciting, and exactly what Derek said. Kind of put their money where their mouth is and it should do well for them. And then hopefully they can get the story.


Into operators locally and continue to get the brand going in the right direction.


They've had a nice turn around clearly over the last 12 months or so. The demeanor and the management teams are, I think, exciting that Tom Curtis was there doing a big endorsement of the brand at the RFC in November. The price they paid is a high price, right? Like we all look at the price for billion dollars for 1000. Restaurants is maybe three or four times more than what what you?


They they would bring in but, but I agree it's putting your money where your mouth is. And so if you're if you want to reclaim the flame and revitalize the assets and you want to put these markets in the hands of boots on the ground, franchisees that know the towns and communities, then this is a bold bet and it would be a I can understand why they would do it.


And I'm like you all. I'm excited to see what comes of it over.


And you know, I'm personally friends with the new Burger King franchisee that just acquired 35 units in the southeast. That kind of fits the bill the franchisees are trying to put into the marketplace. And he's a great operator and a good team and.


Great people, you.


Know so like I think there's this. Maybe Burger King might be on the tip of something that may become a bigger trend. I mean, what do you all think?


Like this idea, this push back against the 2 to 300 unit operator that's been building and building and growing.


Over the last 7 to 8 years, now that we've read about every month in all these publications, it's kind of a decided change and maybe that experiment wasn't overly successful for the Burger King folks. What do you all think about that? Any comments there?


Yeah, I think it's smart, you know, trying to get down to the 40 and 50 unit operators had more of a hands on feel and just increased the brand presence and.


Change the reputation a.


Little bit and and just continue to go forward.


Might we see it in other brands as well? Maybe you know what I mean, I noticed you know, like in oh, 2011, 2012, 2010, 11/12 time frame, Pizza Hut did a little bit of this. So seeing it first hand or second hand, I guess you know they were struggling at the time actually and they had a bunch of restaurants that were coming up for sale that were.


Struggling to find buyers?


Or needed a lot of refurbishment and remodeling and so they actually took over a handful of markets and operated them and remodeled them and built up the operations, took them from some struggling franchisees. I'm not saying carols is struggling, but they did in in the Pizza Hut system.


At that time and then they re franchised them and a lot of those, some of those decisions and some of those actions were successful. Others were kind of meandered a little bit and that changed hands a few times over the last 10 years. But clearly it was a way to put a jolt into.


A market that might.


Need CapEx and need new lifeblood for franchisees. I just think you might be on a trend.


So watch the trend. Maybe you see other legacy brands that have been around, think of brands that have that 3 or 4000 units or more that have been around a long time that may have languished with unit count with bigger franchisees that may kind of been consolidated and aren't doing much in their brands and in the franchise or sits back and says.


Gosh, this brand is so valuable. This is an internationally known brand and it is worth our money and.


Time to go back.


In and buy our stores and then to enhance our brand image and to get new franchisees in the system. So it could be a beginning of a trend for the future, especially since a lot of franchisors just don't have corporate units anymore since they did all the refranchising in the last five or six years.


Any other comments before we move on to the question #2, I saw a couple of Q&A questions.


Couple couple quick things. One person clarified that the billion might include the $500 million or remodel they want to do on 600 stores. Makes sense. We were actually trying to kind of figure out the math on our side and it well, they're quite computing. So that might kind of make sense.


To me, and someone asked what refranchising was, it just simply means the franchise ourselves back their restaurants to the franchisees.


We don't know if they sell the stores when that will happen under what construct or how they'll do it, but it will likely take some time because it probably going to remodel the assets before they do so, so it's probably.


Not something they'll do.


Immediately, I don't know, have no knowledge but.


  1. So that's number one. Here goes. Here we go to question #2 commentary on the current supply and demand for buying and selling restaurants. So what's it like out there in the marketplace? What are we seeing under our engagements? That kind of question for people who are tuning in and then we'll get into pricing and what we expect for 2024. What do you?


Guys think about the.


Current supply and demand of buying and selling restaurants.


Right now, and franchises.


Say generally the the supply is picking up. Think the demand is generally still there. I think people are being a lot are scrutinizing deals a lot more. We have a few recent examples where the outcome of the deal has been just as strong as the outcome as it was a year ago, but the total offers submitted on the deal might have been.


50 or 60%, if we expect 10 offers, maybe we only got 5 or 6, but the top few are still.


Well, just as competitive as they were when we would have had 10. So I think you're not seeing as many buyers in the market or you're just having people scrutinized. People aren't just throwing offers out there like they used to. But yeah, in terms of supply, it's picking up, that's for sure. I don't think there weren't a lot of deals in the market really Q2Q.


Three of last year.


Q4 we noticed a little bit of an uptick and I think it's going to continue quite a bit here in Q1. I mean, just as an egg though, I think in the last two weeks this might be another question. In the last two weeks, we've had 10 inbound phone calls from franchisees looking to potential.


We sell. That doesn't mean we're launching 10 deals next week, maybe we get three or four of those, but it's a pretty good indicator of the fact that there's going to be quite a few.


Sellers in the market.


Yeah, that's I think that's a good point. This 10 phone calls in the last two weeks.


Would be a.


Big departure of what we normally see this early in the year, even in normal year, it's probably two or three time.


More than what? What I would expect this is just from 20 years of touching and feeling it, you know, doesn't and Derek's right. It doesn't mean we're going to take 10 new assignments. If anything, we have to deal with.


Expectations. So like.


We try to keep a 90% success rate in the deals that we do. So that typically means that we're going to turn away a good number of the people whose businesses we evaluate.


Just because their expectations may not be in line and that's something that I think we're gonna that we're kind of working through. I mean people have I mean I think people, sellers especially are becoming more reasonable on the value of their businesses. What happened in 2021 is we had record EBITDA low low commodity.


Costs and and low borrowing costs. So all of those things coming together created a kind of a situation that may not be repeatable, right. So it's taken a few years and maybe frankly a couple of Hard Knocks from all of us to realize that, that, that that may not happen again and that we may be now in 2024 just operating in kind of a normal.


Slog it out one percent, 2% same store sales growth. Fighting for margin type of business and that's what the business has been for the last 30 years before COVID gotten away and made it all crazy. So that's just a couple of comments.


What do you say you?


Got anything, Peter that you suggest or?




Yeah, same thing. I mean, the cylinders are coming around. It's not the same as it was in 2021-2022, was over 2023 is better and update the the expectations are starting to come around and buying is the same kind of same interpretation of the valuation and there's right, you know the buyers are less buyers but the quality buyers are still out there.


And and so you know it's the the domain is still there.


Sure. Yeah. A couple of comments about buyers, right. So we're seeing more strategic buyers and independent sponsors in the marketplace versus institutional or financial buyers. Now. What does that mean? Like fewer private equity groups and family offices that aren't existing franchisees buying assets and more existing franchisees.


Family offices that own restaurants, franchisees of other brands, independent sponsors, new people who are new to the industry but are individual or small group of invest.


So those types of buyers, we're seeing much more. I mean, it's almost been ghost towns with like a ghost town with private equity groups over the last six to nine months. You picture like John Wayne going walking through the Old Town with the scrub brush, just kind of rolling down the street there. It's kind of been that way a little bit with the private equity group. So another thing I'd note.


Is that we have about.


15 engagements right now that we're actively working on with buyers and sellers and usually at this time there could probably speak to this. But usually at this time we're you know we probably have like.


Three or four, maybe five different brands that we're working on left across these 15 to 20 engagements. But this year we've got 10 different brands and 15 deals. And so I think we're seeing maybe fewer of the larger legacy brands transacting in the marketplace and more of these Tier 2 brands, large franchisees and different brands. We're doing a couple of non restaurant.


Feels now too.


I've just noticed that that trend has been remarkably different and most of not all, but most of the franchisees and those Tier 2 brands of scale may have 50 locations or whatever they have, but most of them are independently owned and operated by first generation or second generation franchisees. So there's something to that. And I think a lot of these 10 new phone calls we've gotten.


So far this year have been that same type of demographic, so that demographic is probably going to be a little active as we start as we start the year. Any other comments on supply and demand that?


You guys would would make.


Don't think so.


All right, let's see the next question, what do we expect?


For M&A activity in 2024, now that's a broad question and my goodness, have we not answered that wrongly? So many times it hurts you know we agree with all the craziness.


In the world that.


We live in, but what do?


You guys expect, what do you think will happen for 2020?


We'll just based off the 1st 2:00.


Weeks of this, you know.


This year, with all the inbound calls, we've.


Had surely it's gonna.


Improve and be more into the activity out there.


After 2022, not much activity after 23, not much activity. 24 just seems like it's going to improve and have to have more deals available for buyers. Now. I don't expect us to close maybe one, maybe two in Q1 of this year, but Q2 should be much better just the summer of last year like they get Rick mentioned earlier, we were just.


Slower the fall and summer. So there's deals that we did have, you know, they should probably close in Q2 of this year, but you know just so much demand, I would think there's gonna be a lot more activity this year just based on the slower the past two.


Years another point.


Make yes. The new bills costing so much. If you go build a $2,000,000 store, 2.22 point, $5,000,000 store, you have the sales and so the sales aren't there. It kind of makes more sense to purchase assets instead of building these new assets if it does. If the model doesn't work and building a brand new store. So like I said, a lot of people looking to just purchase instead of building new stores.


Yeah, the next problem.


Yeah, I'd say I'm. I'm generally done making long term predictions after the last four hack COVID was four years ago now, pretty much March of 2020. So almost four years ago, it feels like 2, but I'm kind of done making long term predictions just based on the inbound phone calls we've been getting. I I'd have to think that.


Q1 and potentially Q2 are pick up quite a bit and get pretty busy. Like Rick said. I mean I think.


That's at least double, if not triple the inbounds we would get in the first couple weeks of the year. So if that's a sign of of things to come, it will continue in terms of that, you know it seems like everything you read online as well, you know there are a couple of articles floating around there that restaurant and the nice supposed to pick up this year just to stabilizing commodity costs and sales.


Just everything is supposed to somewhat stabilize this year. It seems like every time that happens, you know another war breaks out or a ship gets stuck in a canal somewhere but at.


End of the day, it seems like a pretty positive trend compared to 2022-2023 was better than you know, 20/21 was crazy good, 20/22 was pretty bad for most people, 23 stabilized a little bit and the idea is we just kind of continue floating in that 2023 bandwidth at least for the first half of this year.


My numbers are gonna be a little bit off in terms of percentages, but you know, like 2021 was a ton of activity and then like we saw probably a 70% drop in business in 2022 / 2.


One and then in 2023, we were probably up 10 to 15%, roughly over 2022. I kind of feel like we're kind of on that same trajectory probably for 2024 and I've got no idea whether this will be right or wrong. We'll see at the end of the year. But my thing is that maybe we'll see volume of our business be up maybe 10 to.


15% this year. I mean it could go higher.


In that I mean potentially it could also run the risk of some deals that don't happen fail because financing or capital does.


I think there's higher risk to to all the assignments we're doing now versus versus the last couple of years because the financing isn't as strong and the conditions aren't as good and the deals are more arduous and the brands are going through kind of you know up and down cycles during due diligence and we'll talk a little bit more about that when Peter mentioned that it was bone dry in 2023 in the summer, I mean that was absolutely true.


Like that was a time frame where franchisees were just starting to kind of feel the effects of the year over year sales and profit increases from the 2022 sale.


Mini pricing initiatives that they took and so these are a lot of these operators in the summer of 2023 are like looking at their P&L's and like hey, my may EBITDA is up 40% over May of 2022, right? So that's not an environment where people like sell something, right. They typically hold on to it during that time. So it was really dry in the summer of 2023, which is going to mean that the Closings are.


Usually in our business like nine months.


After a dry period, you're not going.


To have any closing, so it'll be a bit dry, but new assignments really make it.


In in the first quarter, like Derek saying, I'm just trying to think of a couple of other comments. There has been some pent up demand, right guys, I mean from sellers, don't you think like how do you think about that people who may have missed 2021 but still have a good business that's recovered a little bit?


Yeah, there's a lot of people that missed the boat in 2021. They didn't want to sell in 2022-2023. They started rolling over. And of course, people are just now starting to get year end P&L. So I could see supply even picking up here over the next 30 days.


As these year end P&L start getting finalized and people start reaching out a little more, but essentially you've got a whole year post 2022 that looks a little bit better. People might even wait another quarter or two, it's 2024 is looking pretty. But yeah, I think you've got a lot of people that that missed the boat, they're tired four years of operating through COVID, they've got what they need, they've got the.


The time they need to retire and enjoy their lives and and it's just their time and time to pass it on to the next generation.


The key there is.


Derek, you mentioned this in the vote in 2020.


One key it there is for them to realize that maybe 2021, maybe not coming back around and and kind of accepting that 2023 is was a good year compared to 20/22 and the 24 is going to be about the same. And so is all they have that kind of realization I think.


It could help pick up this year as well.


Keep in mind that the perspective Peters perspectives are from a he worked in a Taco Bell frame at the store level operating restaurants for Taco Bell franchisees. His father-in-law before he came to work in a bridal about 2 1/2 years ago, little less than that. So even when you hear.


His perspectives that they.


Kind of have that background to it.


I think one thing this is kind of going off script a little bit, but it just popped into my head. We've talked a little bit about the importance of supply and demand and if we have a big uptick in supply in the first quarter, but the demand is not anymore than it is now, we may get to a situation where some brands.


Have difficulty doing lots of transactions and we won't. I won't name the brand, but we have been fairly heavily involved in one brand over the.


Six months or so where there been a lot of sellers, a lot of people selling and there's probably another brand or two that are going to go through the same type of cycle in 2024. This is just, I mean, I know it may sound salesy, it's not meant to be. But but you just may be careful about how quickly you come to market. You don't want to wait till April or may to come to market.


If you're planning to sell this year and then like there be five other deals on the market at that time, you know what I mean like, that could have a bad pricing impact for you and just kind of, you know, bring that out what any other. Any other comments?


There's one note. You know, I think there's been a lot of predictions and maybe we're just missing the boat here and and not seeing it. And there were a lot of predictions that 2023 was going to be full of bankruptcy and distress. And I know there were some obviously there were some big profile ones out there in my opinion and we don't do a ton of bankruptcy work naturally, we just don't. But I don't feel like I heard.


Quite as much.


This stress is expected. There was some don't get me wrong and there's plenty of people out there that I'm sure are close on covenants that aren't necessarily in bankruptcy, but.


I don't feel.


Like you've heard about as many bankruptcy deals as people were expecting. I mean, there were three high profile ones in one brand and outside of that it was a little bit quieter than I think expected. If if I'm wrong on that, I just wasn't reading the right stuff. Let me know.


But we noticed that kind of we were thinking about these questions and and you didn't didn't.


Yeah, because we predicted that last year.


If you didn't go under in 2023 off of 2022 numbers, most people do better in 23, so we wouldn't expect it to necessarily pick up obviously big interest rates are well with their P&L's now. So maybe that tightens people up a little bit, but we haven't really seen it. We haven't gotten a lot in bounds on distress and you know there's some but not like expected.


Let's talk a little bit about EBITDA.


Multiples and cap rates or technical question here. What's going on there? Now let me like what are we seeing? Where has it been? Where is?


It going that kind of stuff. What do you guys?


In terms of the real estate side of things, we would looking back at our.


Notes from last.


Year and at the same time last year the reef market was in the the 675 to 7 and a quarter range which everyone was really disappointed by because the year before that it was in the five and a quarter to 575 range and we met with a couple of reads out at RFD.


See in November and at that time those specific rates were at 775 or 8 generally for book sales. Keep in mind these are bulk sales not 10311 offs. So we expect the interest rates to kind of be or cap rates to be generally still in that ballpark on a bulk sale. Just interest rates haven't fluctuated too much.


Since then. But yeah, you just look at that two year trend, they were almost 250 basis points better two years ago than where we are now. Naturally, interest rates are significantly higher. So, but I just found interesting looking back at the old notes.


So they're up about what? So last year at this time?


That year, there since last year, at this time, they're based on our notes about 75 basis.


Over a two year period it's I mean 252 hundred, 25250 basis points in real estate and big slots of the real estate means that the no kidding now will hold your seat here. That means that the value that real estate is like 40% lower than it was two years ago and that's a big lamming right, assuming that sales and.


Have stayed the same, so I think that's a big change, right? But I mean it should be a surprise to anybody should that that interest because interest rates and cap rates move similarly. There's just a time lag in between them.


But if you got a comment, please make it for sure, especially if it if it it's who I think it is, I'd love to hear the comments. So, So what about the 1031 real estate market? I mean you guys I mean similar changes inventories on the market with a lot of retraining time of real estate being on the market, is is really high and increasing cap rates.


May be stabilizing obviously or soon to stabilize.


How do you all think about that?


Yes, same I.


Think it's, you know, it's training. It's the same direction. Still better than the remarket. But yeah, I mean, it's just inevitable these we predicted last year that came through. It just takes time. It doesn't happen overnight but.


So many hikes that.


We had last year just Caprice in.


General up.


Couple of comments that I would make is that we didn't expect like one would be not as much seller financing and fewer kind of earn out provisions in our deals. Now I know we're talking about real estate now, but I mean this on the operation side postulated last year that there was going to be a lot more of that because of the banking situation and because buyer and.


Seller would be part of price, but I mean.


We didn't see. Did we see one earn out in any of our closed transactions last year and did we see any seller financing? I mean it's been talked about, but I haven't seen. I mean I'll let Derek Noodle on it. I don't.


So that we transacted one one, yeah, one day.


We got one we got.


But it's a small small chunk.


Very little of it relative to what we thought last year, right? So that may be an interesting piece of information for those who are watching and listening. The second would would be you would expect operators who own the real estate probably to hold on to it and sell the business only if the CAP rates are impacting the real estate value so much. But that's not what we're seeing. It's actually the opposite.


It's almost been a flood to sell the real estate with the business, right guys and I guess and I'm thankful for those types of franchisees who have kept their real estate for all these years and and do it at once because flexibility is a big deal when you're when you're selling through a more difficult time.




Yeah, I don't think I saw any difference in people holding the rules that are getting rid of it in the transaction I felt.


Like it was about the same as the previous.


Year and it kind of goes back.


To one of.


Our previous comments maybe sellers are willing to accept that the CAP rates weren't going. You know, we were talking about in 2024 is going to be about the.


Same maybe a little.


Bit better than 23 but.


Maybe they're accepting that these cap rates aren't.


Going to move anytime soon and so so holding.


It for three or.


Four more years, we still know that's going to look like in three or four more years, and they're just way to sell that part of it too.


Yeah. What do you say? Yeah, there's a comment in here that's kind of a couple of comments. What do you? Let's see.


Robotics this it's kind of unrelated to our current discussion, but we can we'll we'll hit that in in a few. So, So what do you think you know and a couple of other comments, do we think that cap rates are going to change much? And I I think we've, you know it's been a common question with both cap rates and we're going to talk about EBITDA multiples in a little bit here and and that's obviously.


Critical component in what we do.


People immediately when they see that the feds talking about a couple of interest rate easing kind of actions this year they're saying it's going to impact valuations and it's going to you know change things. And my my gut is don't hang your head on that being a material change environment, it's really just kind of the headline now that may or may not come true but three interest rate decreases of of a 25 basis points.


Each. It's not all that material to the environment, so I wouldn't expect it to spur a difference in demand too much.


And you guys agree with that?


Yeah. I mean the increase has honestly didn't create or demand. So it it's hard for me to believe that a couple decreases is suddenly going to pop prices up or anything like that. Prices generally stayed fairly stable for most businesses and I guess we can just jump into multiples now some some of our deals are seeing no change. I mean we're we're continuing to see premium.


Brands and premium businesses continue to get premium multiples. Maybe you see them fall a little bit.


Just because people aren't loving that 80 plus percent interest rates and you're seeing them fall a little bit. But I think you're seeing it worse in the struggling brands or struggling businesses, I think are seeing a bigger drop off in terms of interest and price. And I think some of some of it just comes to demand a few years ago you could throw out a struggling business and still have quite a bit of interest, like I said.


Really, of this call, I think buyers are a little more picky on what they want to jump into. They want to jump into a turn around market 400 miles away. If it's going to be a turn around, it's got to be.


Contiguous to their current operations for a few years ago, they might have taken that chance and gone after it. Now they're not so naturally, if you're if, if the demand and then the build a buyer pool starts to drop a little bit. I mean generally speaking you're going to see prices and multiples fall a little bit too. So my expectation would be struggling brands and struggling.


This is continue to be tough, sells at good multiples. You've got to really come down on your expectations there as a seller, but if you've got a premium business and a premium brand, especially in a good business friendly area of the country, you can still expect pretty strong pricing. I mean, maybe instead of 6 1/2, it's 6 1/4, but I think you're still going to have.


Enough interest to where that price is going to is going to still be strong. That's my opinion.


Yeah. We think, Peter, similar comment.


Yeah, 100%. I mean the high and popular brands, it's going to be about the same. But the ones that are struggling a little bit.


Or either operationally or in the brand, possibly 1/2 to a full term and EBITDA maybe. But what I would.


Predict even struggling.


Brands and businesses a few years ago, we rarely sold things for less than 5 1/2, and that's on a post GA basis. Now it is not uncommon for us to be telling sellers 4 1/2 or 475.


From maxing out of five, that's even in a struggling business. Three years ago, we would have never. We didn't sell anything for really sub 5 1/2, but very, very limited exceptions. So it it certainly dropped in certain brands. This is an interesting and Peter Peter mentioned.


Is it going to?


Be a development comment. Yeah, me too. Yeah.


It is going to be a development comment, you know, here's just an easy example and these are perfect numbers. If it cost you $2,000,000 to build a site, throw off and E in there. Some brands, by the way are more than that. Maybe some are a little bit less, but we're talking to free saying QSR asset and let's say national average but that is 150 grand.


I mean, that's a pretty horrible 13 1/2 year payback period where you can go buy something you know is going to get 150K EBITDA and you can buy it for say 6 times. I mean, you're paying less than half of what it would take to build the exact unit. And by the way, you don't even know you're going to get 150 in that new unit, it might slop.


And and break the unit in terms of EBITDA.


So that's another factor like uh, that's also a brands that are pushing massive development agreements, I think.


Is generally looked at as somewhat of a negative, unless it's a really attractive market and it's there's a lot of green space to it, you're going to see brands like Wingstop already. You're already seeing it. There's a reason those are so attractive. You can go and put one down for four or 500 grand before tenant improvement allowance and and you know the ROI on those are just significantly better than.


Almost any other QSR concept out there really might be the.


Yes, with some exceptions.


That's where you're seeing the professional investors, you know, continue to make big offers on those types of franchise businesses, right. And the financial buyers, the only place they're actually looking because their calculations on their return on invested capital calculations are going to require them to have big development and as a part of what they do. And if your brand is doing a million, three.


As an AV or million four? Well, I mean, I just make the comment.


That ain't nobody going to.


Be developing at 1,000,003 or 1,000,004 when you gotta spend two and a half million dollars to get there. So it's it's. It's probably a driving force.


That's why the EBITDA multiple has stayed high and brands like were shot up and brands like Wing Stop at Taco Bell and some of these other brands, right, whereas the ones where the the unit counts languishing and there's nobody building any units. And as a matter of fact, they need to close stores. It's the buyer pool changes a little bit there. I think that's a good really good point.


Keep it out. Fortunately, we can expect it to stable. We hope it stabilizes a little bit. I think you'll start to see a little more normal fluctuation.


You know, short of the next pandemic in in August or wherever it's going to happen, you know, it seems like EBITDA as a buyer, you might feel better about the EBITDA year in 2023 then you felt about any EBITDA you've looked at over the last few years just seems like a little bit more stable of the figure. What quick question someone had in terms of the EBITDA multiple on the Carrolls.


Well, I haven't researched it enough today to really know that seems like a low multiple. You're saying 3.9 times. My guess is when you factor in the $500 million of CapEx that goes into that, my gut tells me that's low. I would I would think based on the price I saw, it was more like an 8 or 10, but I haven't researched.


Good enough in terms of the robotics question, that's a I'm sure that could be its own webinar. It's honestly I don't follow it enough other than reading the same articles that you all do. I know some franchisees that are pushing their franchise or it's pretty hard on it with minimum wage keeps coming up. You can expect the timeline to accelerate I guess would be my general perspective.


California has been the 1st to market and a lot of ideas and a lot of new things over the years. They really started franchise restaurants, right? That's where it all started. So maybe they'll be the ones to figure out robotic.


In terms of AI, I'm going to rely on the franchise or for that I am not a technology person. I'm sure there are benefits, robotics, AI, all that stuff. I'm sure there are real benefits that will be seen in the next five years. Probably. If I'm so I'm taking properly, but I'm sure you've got an IT department at the franchise orders that are putting out pretty hard.


It's generally out of my.


You see that some of the brain conventions we attend, but let's jump quickly to lending market. I don't want to spend more than a minute or two here. We got five more questions I want to answer this. They're gonna be good ones. So what are we, any, any comment what's happening in the lending markets? You know we do an annual lenders survey and it comes out usually in the June, July time frame and it's really good usually get like 30 or 40 lender responses and they go into detail about what what's going on with rates and terms.


And and you know, just the environment and so keep an eye for that out in the middle of the summer any as it pertains to our deals, what have you seen?


What have you heard in the last few months?


We haven't had.


I think wonders. They've been a little more.


Recently you've got someone who's out there saying we're we're. We're open for business. We're really wanting to to do a lot of work this year. You've got some lenders that are just a little quieter, but I'm not hearing a massive amount of like, huge negativity, at least on the calls we're having. We might not be talk. We're not talking to everybody every day by the way. So some of our information with the vendors is outdated, but generally speak.


I mean, every business we've had has found a lender as far as I know at the moment. I know there's a couple of deals out there. We're looking for bank debt at the moment, but we haven't necessarily had trouble finding the debt. The borrower is more and more important than it's maybe ever been. It's always important to get me wrong. But I think the specific borrower and their operations expertise.


And the letter getting comfortable with them is more important than it's ever been. But even our tough assignments there are lenders out there. You might pay more. You might have those terms, but generally speaking, the money is is there might be harder to find at all.


You know, without that is, you know, over the past two years they have not been much activity. So borrowers favorite to lenders looking for new business you would think especially if they're neutral on the subject, you know whether not not overly excited not overly negative but they're look most likely looking for new business. So it helps the financing piece of it as well and like actually we hadn't had a single deal.


They did not find financing so.


And I think that speaks to.


Your point, Peter, about supply and demand.


There are fewer.


Restaurant lenders at the conventions and things this year than they were last year and the year before, right, so they've they've whittled down a little bit, but still the amount of activity with refinancing has been almost nothing right. Since interest rates have gone up, why would anyone refinance until their term comes up, which is an?


An issue possibly for the next couple of years as they do come up, if interest rates stay high, but like no one's going to be refinancing their company if they don't have to. So all that business has dried up and M&A activity we just got finished telling you has been down like 70% since 2021. And then just on a gradual uptick since then.


So there is more lenders in the marketplace than there are deals to do. So that's been a positive impact in terms of availability of capital, I think and hopefully it stays that way. But again, if it changes and there's more supply, you may see the conditions change a little bit, remembering of course that lenders typically see things six months to three months to six months in arrears from what's happening.


Right now, at this moment, you know what I mean. So they're largely looking at a situation that might be a little more pessimistic than we might be looking at it at this very instant because they're looking.


Maybe a data from the beginning of Q3, if it wasn't as good as it is now.


So how about the next question yesterday's?


Buyers were family.


Office and PE consolidators who is today's?


Buyer we we.


Talked about this a little bit, so let's.


Make this one quick one, but.


What do you think about that? Who are today's buyers for these businesses? Little.


More strategic buyers than than you're used to, and I think that.


Has to do like I said with some of the.


I've seen in a lot of deals falling a little bit. They've caught up to the PE buyers a little bit. PE really likes to to buy and then grow aggressively and then that grow with that new build alive that looks so pretty. They're going to stay on the sidelines a little bit longer than that eight percent, 8 1/2% interest rate starts really negatively affecting their ROI and.


They're going to struggle to want to sell in the next 5 to 10 years, but the the payback they're looking at, you're going to find a 20 or 30 year old buyer that doesn't. It's not as big of a deal to them.


It's a big deal, don't get me wrong, but comparatively it's a little bit easier for them to swallow. So you've got mid size and large franchisees as well that are generally growing a little more aggressively than maybe they used to. Maybe they see an opportunity because the other the PE buyers are a little bit on the sideline, maybe that just brings some people out of the woodwork that didn't think they had a chance of getting deals.


Before that might be a that might be part of it, I'm not.


Sure. Maria. Can you name for you?


Well, I would say there's a couple of the only two of our deals have private equity buyers right now, which is kind of low. And if we had a couple of deals that kind of fell apart last year, just a few, the majority of them were private equity based kind of deals. And so I, I I make the you know, I just make the make that observation that that market is just not really stable and strong right now.


You know what I mean? So if you are a listener or a watcher and you are for private equity group and you want to get into this space and we'll talk.


A little bit.


More about that you need to get through. You know if you're aggressively wanting to get into the space, you're now the underdog like you are now the tortoise and not the hare does that. That makes sense.


And it's been the total opposite over the last seven or eight years where family office and private equity have come into the space and they wipe out the existing operators who are making offers on these businesses at lower values. But now it's it's different. It's like their execution is poor, you know, and I've been in this business a long time. I tell you, I put our list in our contacts.


Private equity and family offices against anyone in the country and anyone in the world, including every bank and wall.


Through all of them, and they're just not.


The private equity.


Groups are not really well made for franchising investments, so they take up a lot of headline space on.


These news articles.


But they rarely come through. And maybe. Maybe.


The thing I've said for a while is when we have a deal on the market. It's out there for three or four weeks and anybody watching this knows that we don't stop something on the website and have it linger there for six months. That's not how we operate. If I've got to convince you why you should enter a brand and a three to four week period, there's a 90% chance you find something out during diligence you don't like and you kill the deal.


If you don't already love the brand when you see the deal come to market, there's a 10% chance that deal close.


It's my job to convince someone that already wants to be in the brain. They love Pizza Hut or KFC or Burger King. Why this particular business is good for them? That's how I view my job. So I have to convince you to enter a brand in a three to four week period. That deal is going to die all day and I'll tell my sellers that.




Have no qualms about being truthful for that.


And a lot as a buyer know the brands you want to get into, don't take it down the road, do your diligence on a brand when you have exclusivity and then kill, it seems like more and more that's happening.


It's happening a lot in our forewarning for those of you who are listening to it is it's we're all wise to it now. After a couple of years of being in negotiations and discussions with some of these types of buyers who aren't fully buttoned up in the brand.


They haven't been down to talk with the senior executives at the brand. They haven't gotten their brand approval. They're just trolling the marketplace, throwing in offers on businesses and then trying to figure it out later. Well, I mean, he said, Derek said it's a 10% chance that deal closes. I think it's less than 5% chance that deal closes.


So if you.


Are a private equity buyer or an independent?


Months are OK and you're making offers on these businesses get buttoned up before you come to us or any other advisor or any seller when you're trying to buy.


A business that would be.


I think the best advice that you could hear from any of us for.




And to flip it into something else, to the mid scale and to your strategic buyers to your existing family offices, sell that. And if you're making an offer and you want to put yourself out, if you wanna stand out, know the brand, have your pre approval or an e-mail from France.


Guys or that they like you. You're somewhat approved. Obviously, everything you gotta go through formalities when you get to deal. But use that to your advantage. Don't be silent about it. If you love the brand, if you've already done all your diligence on a brand you've met the corporate team. Obviously, if you're already in the system, use that to your advantage. Sell it, because that's an ad. That's an advantage.


That you should have and you should use it when you're submitting offers.


Is gonna be one of the first questions we asked too during the conversations as well.


Deals have gotten more arduous. They're taking longer time, there's higher risk if they fall apart, the due diligence is harder, and all of it transfer approval takes a longer amount of time. EBITDA, the P&L's are going up and down with all of the still dealing.


With the after.


Effects of of COVID and you don't want to introduce like the risk of somebody who likes your house, but.


Doesn't know what city it's in. Type of bike and wants to get wise to what the city is, where your house is located like that doesn't make sense, right? So you don't want to take that risk if unless that's the only person that's out there to buy your.


Business I'm going to make a comment and one quick comment about why sell now or what, why what people should be considering selling now. And then we're going.


To end with answering.


Two questions, OK, because they got about 10 minutes left and they're good questions that are meaty questions that I think the audience will want to hear. So why sell now times are better in 2023 to 2022, a lot of.


The pricing initiatives probably.


Have taken full hold at the end of Q1 or in the middle of Q1 of 2024.


So these businesses trade on a trailing 12 month rolling 13 period EBITDA, Adjusted EBITDA basis. And I think you probably back to a more normal period of rolling 13 periods around the first quarter of 2024 than we've seen over the last four to 4 1/2 years. That might be a reason someone would choose to sell in 2024 plus the fact they may have gone through some.


Ecological and emotional damage with all of the difficulties of operating these businesses over that time, it's been hard. I mean, it's hard to operate our business right. It's not easy to operate these businesses in this.


Environment. It looks like we have some geopolitical risk that's increasing looks. Could we have a recession this year? Consumer spending seems a little bit tough. Transactions are hard to get. There's a lot of competition from these pesky upstart and really well healed now new brands out there. I think I said it on a wet on one of the podcasts.


Recently I was at Waco at our daughters University. And I mean you go to the street corner there and they're like 6 or 7 new brands like the ones you know, they have like 2 or 300 locations, like a Hawaiian concept at coffee concept. Great concept. All these like new in and out. But like all these things.


And you walk and you.


Go into them and like they're clean assets, the well run the Dr. throughs are fast and like then you look across the street at the ones we all know and the ones that we're doing business with all the time and I'm left with the conclusion that they're going to get the rear ends kicked by these new concepts. And so I think we're all needing to kind of see that but like we all have to up.


Our game, right, and we ought to be for later playing football or whether you're operating restaurants, man, you have to know your competition and up your game. If you are a legacy chicken or pizza or whatever burger provider, don't be ignorant to the fact they're people nipping at your heels with better service, better food and better speed than you be wary of that and they may overtake you quickly and you.


You be the next Howard Johnson. Who the heck knows? So here's a question. What are the considerations when timing a sales successful and getting it closed? This year's comments real quickly.


Yeah, they surely.


12 months. You want to time it just right. You don't want to be maxed out and then the next couple of months during due diligence, confirmatory due diligence, sales start to drop, EBITDA start to drop and then it has an effect on the transaction buyer signs and Li and APA and EBITDA is down, sales are down, then we're going to have a problem during the deal.


So ideally you would want to be flat or.


Maybe a little higher and.


EBITDA going into it.


But the process is long. It's it's not a three or four month process anymore. It's 567 months. And so you got to stay in the game and and just make sure your financials are as good as they possibly with the possible possible upside there.


We'll try to condense that, but there's things out of your control and I want to touch on something Rick just said about the new upstarts.


Nipping at your **** and just.


Pesky small franchise orders looking to overtake you don't look at that as a negative comment that could come off that way. Obviously our bread and butter has been legacy brands throughout the history of unbridled and even us. We see competitors of ourselves and we've got to react and do better and get better. So don't think of that as a negative comma.


But it is a true comma.


It's a real comment. If you just get complacent and the operations filter your employees, filter your time, your your drive through times, filter your cleanliness filters, people see that and now they have options, they have more options than probably ever before. I would say that's probably a fact is they can go over across the street to the new Greek.


Place it's perfectly clean and.


And they can get it out in and out of the drive through and in a couple of minutes, and the food's hot and fresh and all this. So don't, don't think of it as a negative comment, but it's a real comment. Don't get complacent. And because the the consumer can speak, they'll speak with their money. And at the end of the day, they have.


A lot of options.


We're fighting for transactions and I say all this with love for the legacy brands that have made my career and livelihood that I love to death, right? Wear the badge on my sleeve every day so.


Good point, Derek, I.


Mean Peter made a comment that I I would just want you guys to listen to if you haven't heard this from us before, when you sell a company.


It needs to be flat to slightly positive if it can be during the six months of due diligence because because that's going to go a long way to preventing retraining or buyer financing getting changing in a negative way because the covenants have changed or the conditions of borrowing have changed. So don't hold on to this company.


Until one minute before it's going to drop in sales and then sell it. A lot of people think that way, but you really want it to be going mildly up if you can't get it up in sales, at least maybe mildly up in EBITDA while the transaction.


Is transpiring. That's the way to have the smoothest type of a. A deal that will close in any year, but certainly in 2024. Any final comments, gentlemen, that you all might have, let's see. We have a question still on the board, which is what are some buyer considerations when doing it the on 2024. So let's talk about those for a minute. I mean, what if you're a buyer and you're about to buy something?


When you're in the marketplace, what comments do we have for?


Yeah, I think I think the biggest one that I that I tell people and that we tell people a lot and this isn't necessarily like if you're under unit franchising in a certain brand, you already picked your brand and you know what you want to do. I'm more referring to the group looking to either getting the new brands or somebody new and coming into QSR all together, pick a few brands that you really like, don't buy into something because the multiples.


Or it's a decent geography and it's all that's out there. You need to believe in the brand you're buying into or you're like there's a good chance you're going to fail regardless. Believe in the brand and I know they change often, but believe in the leadership team too, if you like the brand and you go meet the leadership team and and think they're horrible, you probably want to rethink.


Going into that brand, if you're mediocre on a brand and you think the leadership team is great, they're going to take the brand in the in the future. That's probably the most important thing in my eyes, is believing in that leadership team and and just, you know, just under that is believing the brand itself, but the brand to an extent is what the leadership team.


Just at the moment, in addition to that, like we said, we think he was going to be a little more stable this year. I don't think you expect any massive crazy lips. I don't think we're expecting any massive drops. Obviously there are going to be exceptions to that rule that we had three years of pretty big volatility in 20/20/21 and 22 and it feels like for a little bit more of a stable.


Time period again until some ship gets stuck in a canal somewhere and you got a six month delay on getting product. You know who knows or another superpower decides to invade somebody? You never know what's going to happen. But generally speaking, it feels like a little bit more stable in the in the micro restaurant level.


Any comments, Peter? And then I'll make the final comment.


I just think also you got to look at your current business as a whole, what your sales look like in the future throughout the rest of the year. What should margins look like, what's your leverage look like because you know more equity is going to be needed in the future with least let least just leverage dropping. So it's not just the Derek.


Mentions. If you're going to diversify, if you're going to stay in the same brand, you still got to make sure you're taking care of what you.


Yeah, but at the time.


So that doesn't normally come out.


Yeah. And I would wrap it.


Up by saying be ready if you're a buyer and if you're a seller, just be ready. Be prepared. I mean, you've got. Be ready. Be ready with your capital. Be ready with the diligence that you've done on the brand. Be ready for the opportunity when it presents itself. I think the main message that I would deliver today for 2024 and want to be wrong.


But and in my heart.


Feel this way right now that it's kind of a return to normalcy like 2024.


Probably buying and selling is is kind of the supply and demand of it is probably going to kind of even out. We'll probably be like some of the years like in 2013 or 2000 and.


Four, I mean.


I'm just trying to think back into the past years where like there's a decent amount of activity. Deals are happening, cost of financing is a little higher.


Channels are fairly predictable. The environment is not awful, not awesome. It's somewhere in between and it's back to what we know about this business, which is it's never been a business where you're swinging for grand slams. It's been a business where you're hitting singles and you're sliding into second.


Base and you're not sure if you're out or safe. This is a business that's been up one or two percent, both in terms of sales and profits. I mean, that's kind of what it does and it does it basically alongside GDP growth plus or minus. So that's what we're back into. So be ready if you're a seller. The marketplace isn't bad, it's not bad at all, actually, probably replicates.


But it will be for the next several years, absent any crazy things happening. And if you're a buyer, there's going to be more opportunities this year. So be ready and be ready and you might find some good opportunities for you. So that's all we have today. I just want.


To say thank.


You to all of you who are.


Watching and and we'll listen. Call us if you need our help in any way. And thank you, Derek, and thank you, Peter, for being a part of this. We hope it was informative.


Thanks. Thank you all.


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