Welcome to the restaurant Boiler Room Season 6, episode 8. I'm your host, Rick Ormsby, managing director and unbridled capital. Today in the boiler room. I'll be sharing my thoughts as a panelist at the restaurant Finance and Development Conference known as Rfdc, in a panel entitled accelerating Growth Strategies for franchise acquisitions, I'll also share some general perspectives from the conference.
It's true.
The restaurant boiler Room is a one stop shop for multi $1,000,000 merger and acquisition activity and financial complexities affecting the franchise industry. We talk money deals, valuations and risk deliver to the front door franchisees, private equity firms, family offices and large investors and franchisors on a monthly basis. Feel free to find all of our content at unbridled capitals website at www.unbridledcapital.com. Now let's enter the boiler room. Well, as you hear this message, I want to 1st give a shout out to you guys who have been hanging in here with the restaurant. Boyle room. We are almost at the end of season 6. Mean I can't believe. Man, how time flies, huh? So. I'm going to keep doing. It's been a, you know, just a blast to do it. And so we'll be creeping up here on season 7 in 2025. And sometimes I I kind of listen back to some of the old episodes and it really creates kind of a, I don't know, kind of a portrait or a painting of of time. What our industries look like of kind of our perspectives on the industry and the industries changed a lot over a couple years. Especially from like 2020 on to today. So thanks again for listening. Quick update on business. You know the M and a industry really was slow and quiet as crickets prior to the election. Shouldn't be a surprise to anybody, but I think you know I I do sense some significant amount of optimism. From the election, maybe some of it is just the general knowing of what the future is going to look like. The rest. It could could potentially be that a lot of the, you know, small business owners and people in this country who. To operate, restaurants and franchises tend to like low taxation, low rate regulation, Pro Growth, Pro business. So there's a I think this quiet amount of optimism kind of like a breath holding optimism that that, that our industry may kind of come out of what's been a very difficult three, 3 1/2 years at the end of. One until now. So today I'll share a little bit about perspectives on restaurant finance and development. So we'll go through that a little bit and then maybe just some other broad perspectives too. Happy Thanksgiving. You hear this and Merry Christmas, which is coming upon us here in a few weeks. Hope you have a blessed time over the holidays and we get ready to go get it in 2000. 25. So the name of the panel that I did was called accelerating growth strategies for franchise acquisitions. Was a Tuesday. Mid morning panel at RFC.
I mean, I'm.
Not sure. How many people were there? But I think I. A number that was in the four thousands. So for those of you listen who haven't attended, it's a good there's a lot of advisors and lenders and franchisors and lot of people who support the franchise, mostly restaurants. Franchise restaurant industry. But there are some franchisees there. And it really is just a nice place to. Establish some connections to hear some industry trends to get to know some people see old friends. I think I've done twenty of these. Can you believe that? I'm 50 years old this year? So, I mean, goodness gracious, 20 of these conferences and it was in Las Vegas, I was telling somebody after 20 years of doing conventions in general, maybe going to Vegas twice a year for 20 years, times 3 or 4 nights each time I am rolling on almost 2. Days in Las Vegas in my life. When people talk about. Being like dog years in Las Veg. I've certainly loved it, but I'll tell you my my claim to fame is that I've only bet $5 one time in Las Vegas in 20 years. Not because I'm a. Maybe just because I don't like the mass of gambling, but I lost 5 bucks on a Kentucky basketball game a couple of years ago when they were playing Duke. And so that was the only time I bet in all that time out there. I know that's random aside, but yeah, this this Convention, it is fairly well attended. The way that it starts like midday on the news around 2:00 PM local time, which is Pacific Time on on Monday and it ends on Wednesday around noon. And so usually Tuesday is the meat and potatoes of these panels. There's maybe, you know, I don't know. Just stabbing in the dark here. 10 to 15 panels and. For the third time in a row, I've been asked to be a panellist. What I hear was one of the most popular breakout panel discussions. It's been moderated three years in a row with Nick Cole, who's a senior lecturer. And then I've been on it for the last three years and then it's been mostly franchisees along with me to talk about basically talk about the M and a industry. This year we had. The other franchisees were Neil Yadav, who out of California who I think he said he has 550 restaurants. Owns a couple of small franchise stores like Nick the Greek. And then use a big jack-in-the-box franchise as well as other concepts. He's done extraordinarily. He's out in California and then Greg Grambling of Guernsey Holdings was also with. And they own maybe 120 or so Sonic Drive. And then they also became a Zaxby's franchise and owned about 20 or so Zaxby's and. We we helped to Guernsey sell their Little Caesars, roughly 30 Little Caesars units in the Midwest earlier this year. They exited that brand. So it was a really good discussion. You know, our panel was full. So I I don't know how many people that. Probably, you know at least three or 400 or more were there and it was full. And so I'll share. You know, kind of some of the questions that were asked of me and then some of my responses. You know, my hope is that this is maybe a 20 minute time. Here for you. So be able to shorter than normal and then we'll we'll sign off after a few final thoughts. The first question was what is the state of the MNA market this year versus last year? Where are you seeing the most activity? Brands, geographies and types of. That was the first question and so. Here's my. So unbridled projects are revenue to be up about 5 to 10% versus 2023. And maybe around 15 to 20% versus 2022, which puts us still really you know, while on the surface that may sound like wow, you know things are looking up and doing well. I mean and we are doing well, but we're still real well below. Our five year average, even a five year average when you pull out 2021, which of course was an enormous outlier with the amount. That there was. So you, you know, we're kind of climbing out of a low base, we're still probably.
You.
Know what's normal anymore. I don't even know how to say that, but but maybe a normal year, we're probably still 15 to 20% below what a normal year would be. And so we project to sell them bridled businesses. In nine different brands this year, up from 7 brands in 2023 and six brands in 2022. I think there's a message here that that kind of can be across the whole industry. It's kind of it for us this year. We've been doing broader work with less concentration in anyone individual brand. In the. And a world and buying and selling anything, whether it's houses or bowling balls or cars or businesses, whatever the heck it is. You know, you usually have a contingent of people who sell. That. Kind of sort of independent of time. So I don't know what that percentage is, but I've always kind of said like a third 1/4 to 1/3 of people sell things that it has no correlation with a good time or a bad time to sell it. Just sell. So maybe that's because there's a death or divorce or they're. Or there's a change in circumstance in their family or health diagnosis, or, you know, they're just a number of reasons. Someone might sell something other than trying to sit with their finger on the button to time it perfectly, or to get out at the at the right time. So I think. Been a little bit of that. For the reason for the kind of the diverse, more broad work across more brands but less concentration and the other comment too is, and I've been saying it for a while now that if you have and I'm going to talk a little bit more about this, but if. Have a really good business. Whatever your business is. I mean, there's not a lot of really healthy businesses that are available for sale right now and so. Can dictate when to sell your business. If it's really good because a good business will sell no matter what, it's kind of. Having. A beautiful home on the water in Florida. I mean it. It doesn't matter that interest rates are 6 1/2 or 7. If you've got a unique. Asset on the water that everyone's going to want. They'll find a way to buy it at whatever the price is, right? Kind of. That's kind of another. So as I look back into the kind of the kick up in terms of the number of brands that we've been operating, that's that's clearly a factor too. Our geographical spread, which was part of this question, continues to remain 80 to 90% in the Southern States and then in non solid blue Midwestern states. I mean, it's just the way it's been for us and I think I'm, I'm thankful for that. Obviously from Kentucky originally originally and live in the Gulf Coast. Now so I I traverse between that area you know those areas of the country anyway. But I think. Clearly, those are the places where our franchise industry is doing the best, with some notable exceptions on the West Coast, and then, you know, in the Northeast clearly. That's where where most people want to buy businesses, especially businesses of scale, and operate them in those types of areas of our country. The Fast act of legislation has made California transactions difficult, if nearly impossible. In 2024, except for a few key brands that have had just tremendous growth. And so I think you know, it has been a year in California where minimum wage has gone up so much and it's just been so much uncertainty of what it would do to the P&L. Obviously, operators cannot raise the prices as fast as minimum wages incre. Clearly there is sagging consumer demand in many of the brands too, even out in. And so raising prices at all has been a. So a lot of the, a lot of the increases in in wage rates have had to be stomached by franchises. Been dealing with SAG and consumer. And so, because of that, the P&L has worked questionable, you know and and when anytime you have uncertainty, what does that create? Creates a situation where people don't want to buy something or will discount it too much, and so that has happened. Good news maybe. California, although you know, I think I would only say limited good news for trying to sell a business or buy business out there. Would be. Once you have those wage rates built into the P&L's in a year or two and you know everything is hopefully smoothed out and ironed out, I would guess the uncertainty at least would mostly go away. Whereas in some other states around it and other for the moment, now for the moment, mostly blue states are talking about introducing legislation that's similar to California. Would rather always have the known than the unknown at this point. Once you have your business. Managed appropriately, that's for your California transactions. So another item of note for this year that I think is notable for us at least is that we typically derive 80 to 90% of our business from founder led franchisees who want to sell their business. OK. Or borrow money or? Or buy businesses. But this year, about a third of our business has come from private equity and family office Sellers who wanted to exit as their investment time horizon sunsetted. So that's kind of interesting for the last, I mean, I guess the the phenomenon kind of started happening in 2014. I mean sure it happened in the late 90s and early 2000s when. To get it in the industry you started seeing small private equity groups and family offices get into the restaurant business especially, which is probably 70 to 80% of the franchise world anyway, but. But it was in a you. I've talked about this. It was in small amounts and it was kind of gradual overtime and I cut my teeth in the Yum system as you working for the Yum franchisor in KFC, you know, and Taco Bell and Pizza Hut. And at the time long John Silvers and Aw. And so that. Kind of the the kind of the brands where you started to see it initially. And so I kind of got that. When I worked there but. Really, you started seeing the acceleration of private equity and family office in 2014 and 2015? 15 and you had some panellists out there from Garnet station, Alex Sloan and Matt Pearlman, and they talked a little bit about, about, about that and they were guys who came out of Harvard Business School and, you know, grabbed a bunch of Burger kings and operated them. Success. And then, you know, sold them to carols and, you know, also, you know, they've done big, big and great things after that. Now buying franchisors. But but that kind of big wave. Happened in 2014, 1516 and. Well, that puts us in 2024 at the end of seven-year Fun Life studios, especially the the companies that got in in 1718 and 19, especially the private equity groups want to hold these assets for between five to seven years and then sell them. So that business has picked up a little. We had a couple of those transactions this year. Then. Had a couple of family offices, one in particular that. That is a third generation 60 plus year franchise. The third generation had a board of maybe 7 to 9 people and they kind of made the decision to move on from their investment in, you know, liquidated and put, put their assets in something else. So those those decisions. Have have happened this year. I think we'll see that continue in 2025 because frankly a lot of the private equity groups are going to hold on to their assets and try to time their exits as best they can to monetize a game, because that's what they're in the bus. To do and I think they haven't been able to do that as successfully. In the last couple of years. So. So we'll see that probably unfold a little bit at 2025 and 2026. In terms of brands, Wingstop has gone bananas this year. You know you've heard of some bigger deals happening. I mean a bridal's done like I think 4 deals in Wingstop in the last couple years that multiples are crazy you know 10 times ebid are maybe even a little more at times. And that's also just so, you know, somewhat independent of the size of the transaction and people think that you have to amass a. You know a. $1,000,000 EBITDA business with two 300 units. In order to get that. And it's not really true. Even the smaller businesses are attracting that type of multiple 2. So it's really a. One-size-fits-all approach to these crazy Wingstop valuations. With 35 and 40% sales growth, my goodness gracious this year and lower cost of goods with wing prices, it's just been an unbelievable boom. And I was actually out at the wing stop convention, which coincided at the same time as our FDC. I was out there for the 1st 2 days of. Over the weekend, you know the last week and then bumped over to Rfdc for the last three days. So I was there for five days at 2 conferences and felt like a zombie. By the time I left. The optimism in the Wingstop? Brands amazing. You know you have a lot of, you know, small to mid size operators who who are becoming larger operators and are growing a lot. And it's a crazy system because it feels like it probably the go go days of the 70s and 80s when you would meet a. One year and you'd say, hey, Bill, how you doing and how many stores you got? Like 14 and then you've seen the next year? Bill, how you? How many stores you got? And like, hey, Bill, how you doing? How many stores you got the the, the third year? He's got like 40 and it's like what? Earth but. The unit economics and performance has been so strong that brands talking about trying to be 6000 global units and I think they may have. Not. Maybe around 2000 now so. You know, franchisors typically want more development than what's reasonable or feasible, but directionally their their planning and plotting to become a big powerful. And obviously, I'm a sports fan, so obviously if you watch sports, you probably started to see their commercials probably more so than most other brands, right? They were a big talk. The brands that are also doing. S plenty of emerging brands have been really exciting. That have been posting these. Massive Auvs, you know, so that continues. Be a. I mean I I consider for an hour and name the brands, but there's probably 30 or 40 different brands that are starting to emerge that I've had a lot of success. And I've defined a lot of. Maybe an average a UV that's like $3,000,000 or so you know. And so they have small unit. But keep your eyes on these things, or ones that maybe have $2,000,000 a year like a wing stop business does, but does it in. Small footprint. It and does it with pretty high, you know margins and low development. So those brands I think are getting a lot more attention than maybe some of the legacy brands. Taco Bell continues to be a name that you hear, that's a hot brand that's blowing through the hallways at rfdc. And those brands have tons of buyers at high prices as always. But we have the story in 2024 of of struggling brands and struggling consumer demand. Mean same store sales in the industry have been kind of flat ish. Down transactions have been really. Some brands are seeing transactions, you know the. Amount of. Customers coming into the stores down as much as 10 or 12% this year. Mean even Starbucks has seen some mass. Massive decreases in consumer foot traffic dealing with competition and riding their ship with new CEO Brian Nichol, who came from the from originally from Taco Bell and then Chipotle. But pizza has struggled badly this year. Some of the big pizza brands have posted really negative sales. I think we saw Papa John's posting almost -6% same store sales. I think the time frame was Q3, we saw Pizza Hut come out with like -1%. I mean, it's just kind of, it's just been kind of languishing this year. Some chicken and some burger brands have struggled and certainly casual dining has been a really brutal place to. There have been some notable exceptions and my my friend Kevin Hartman is the president at at Chili's seems to have been bucking the trend with some crazy positive performance and results and good. Him and good for that brand. I always love their wings, by the way, man, when I was, you know, growing. So I always liked the Chili's brand. So they're doing something right. But a lot of the other ones have been struggling. And so sales, like I said in transactions are down. In many cases that it's being hit with a double whammy, which? Down, you know, and some of the transactions were not transactions, just some of the businesses that we've seen two to three to 400 basis points in margin over 2023 because of cost inflation and you know wage and you know cost of goods and so. Mean when you're losing. Call it 2 to 3% on your bottom line when you're bottom line after paying your debt. Service is only 7 or 8%. I mean, that's meaningful. That's like 30 or 40% down and and you know profitability. I mean forget about selling something if you're just trying to operate it, you know you're you're lean and you're tight, but my encouragement is momentum comes quickly and I think I'll talk a little bit about it. A minute. I think it's going to come. Maybe not immediately, but it's going to come quickly I believe. And then you know it when times are Gray and when you're, you know it's a little bit darker when when it's not raining, right and you're in a little bit of a drop. That's usually when you can. Your operation. Long and tight, and be ready for the wave that's going to come with some positivity and then you can profit on it. So my sense is that while I'm bridal is doing pretty well in 2024, I think from just listening to the Convention and you know kind of sniffing around and incess talking with people, especially when there's you peel back their general positive aura and you ask some. Questions about how many deals have you funded this year? And I think what you kind of hear. Is that it's been a really difficult year and many deals are not closing because of valuation expectation. If anything, this might have been the year 2024 of the year where deals didn't close. Know. So there have been a lot of deals just kind of sitting. Like a kind of a rotting fish on the marketplace for a long time with with unresolved kind of kind of situation and my pitch over the years has always been this. You don't want to be the guy or the girl. To have a business on the market that sits there like a fish and start stinking and doesn't sell, not only does that you know, you know people who sell things don't naturally think. This but it is so true that if you put a business on the market that sits there and languishes and doesn't sell, you become spilt milk in a hurry and you it's kind of a self fulfilling prophecy. You go out. Let's say you're at your house and your house is worth a half million dollars. You put it up for sale for 700,000. And it sits there and it sits there and it sits there and it sits there and then really, what ends up happening was it might have. Able to attract. 125,000, right. Because you priced. At 700,000 and it's set. For like a year. Here, now your House will probably never get more than 450 or 475, and it's just because most people will just bypass it. Over it and not come back to it because they thought it was unreasonable the first time. So there's a very real negative reason to be undisciplined and come to the market on bad information. I mean, I'm telling you, it is a bad decision. The other thing that happens with deals. Close, clearly, is that the longer you're out there, the more your employees find out. And when they do that, guess what? They've got other opportunities on next street corner to go find another job. Special restaurant managers, which are the heart and soul of this business, that good restaurant managers, businesses like ours don't run at all, don't run profitably. When they leave, you have a mess on your. So I I guess the final comment I would make to this question was we expect. Our company. The valuation gap that is causing these businesses to sit and not sell to lessen by a mid year of 2025. A. And the guesses have been. I mean, clearly one of the laughing jokes was, hey, everybody, you all said last year at this convention that 2024 would be the year of turnaround because of all the pent up demand of people not being able. Things in 2022 and 2023, and you're clearly we're we're kind of missing the boat on that one and and. I got to say, yeah, that's right. I mean, while I just told you that our revenues are up a little bit, it's still probably pretty protracted. 2024 did not end up being as strong as. Had wanted it to be. Clearly, we didn't see the rebound that we had wanted and I think there are reasons for it. But you know, one was probably the surprising drop in consumer traffic in 2024. That was clearly one of the reasons. The second question that was asked, and I think there are a total of 3 questions. So this is the second question in the panel at Rftc that was asked of me was for engagements you had in the last year that didn't transact or that struggled. Were the main obstacles and are there any consistent themes? Well, let's see. I said that most of our deals transacted. So we continue to try to deliver and we have been delivering about a 90% success rate. If we take 20 assignments, we're historically going to close eighteen of them. 18 of 20 is 90%, right. So you can't be perfect. You can't pick the right client in the right situation every time. There's things that are unforeseen. But most of the time we represent healthy. Clients in the sale financing or acquisition of businesses in healthy situations with growing brands and and and that's our model. It's important to know that and also know that in 2024 our company, our company. Down over 40 assignments. I mean, Can you believe that? O usually when. Do evaluation with a client. They call us and they want to know the value of their business and kind of understand their. And talk about. I. Say like half of the valuations that we do typically. Up in a you. In an assignment, and probably in any given year, we, you know, we don't come to alignment with maybe 10 to maybe 15. Potential clients. This year it was over 40. Can you believe? So that number is very telling and so while our success rate is it, you know 90% and I think we're best at what we do, we screen really hard on the front end and don't take deals that have big valuations. When we can, you know, avoid it. And I think that's the message in this first point here is that by having that many deals that we turn down, there was just a persistent valuation gap in the marketplace. And this was across all franchisees almost across almost all brands. And almost all geographies in almost all situations. And there. A number of reasons why that that that is. But the two primary reasons for evaluation gap and typically in our company, I mean if the gap is 10 to 15% or more above what I think it's worth, that's where we typically say thanks, but no thanks. Let's monitor and come back and talk again. Now, probably if we. Down 40 assignments. I mean maybe. Don't. Maybe a third of those assignments went somewhere else and got a second opinion. And most advisors are going to maybe, I don't know, lies not the word, but probably embellished to try to get an assignment, especially if they don't have anything. In the hopes that their client will get fatigued and learn what the real price in the market is and decide to pull the trigger even if it's less than their expectations. Course I don't do. We don't do that, but but I I just say that to tell you that that's probably one of the reasons why. This year is probably the year that deals didn't close right. Someone goes and gets a different opinion from a someone who's hungry, who wants to put a business on the market to put on the market. Doesn't transact so, but the reason for valuation gaps are typically twofold, broadly speaking. Other factors, but here are the two. It's EBITDA, you know. Businesses multiplied by a multiple of EBITDA. Those two taken in a concert at kind of achieve evaluation mean there's other things like you. Many remodels, do you have to do? Do. Own real estate. And what's that worth with cap rates and implied rents and things like? But if you just kind of take a business that doesn't have real estate that doesn't have like crazy Ramada obligations, which are the legacy brains, do you just take these two factors? Multiply them and you get. Evaluation. At least it gets you directionally. So EBITDA of course has been wildly different depending on the. I mean, several brands are naming Wingstop again are going to be like up massive amounts in EBITDA. Many brains are going to be up fractionally. Need to do that, but the majority of them in our industry, especially since our industry focuses on large count multiunit franchises, a lot of the bigger ones have been down in eBay this year. And so once you take a business that might be down, I mean call it 10 to 15% in EBITDA over 2023 because. Like declining consumer and because of increased car. And then you roll it through an EBITDA multiple that might have dropped one turn in the last year because of the delayed impact of rising interest rates, people, people don't get that right too. Say, oh, interest rates are reducing, therefore immediately the multiples are going to increase. That's not what happens. There's typically. 1-2 month lag and you typically Don. See meaningful change in the EBITDA multiple until the last or near the last interest rate reduction or increase has happened. So it's very much a delayed effect that can be more than a year, if not a year and a half. So you say well, how could multiples be down by a full turn or more just in this year we've been in a kind of a rut for the. Couple of years and that's the reason why. So when you take a business that might be down from a six times EBITDA multiple to a five times EBITDA multiple and the EBITDA in 2024 is down 10% versus 2023. Can you bang those two things? And multiply them. You may have evaluation that's down 30%, right? And that's probably the average gap, roughly speaking, of all these assignments that that we saw that that we didn't take in 2024. Reason why? You're seeing deals not transacting, you know, is kind of the nature of the question. Is that that private equity buyers have been kind of on the sidelines over the last couple of years? Offices too, but but to a lesser extent. Private equity obviously has limited partners and general partners and they and they want to sell something five to seven years maybe or so some of them have different flexible structures that was brought up to on the panel about how private equity may be changing the way they look. Businesses their hold period, their IRR requirements are lessening a little bit in order to in order to make the model work. But they've largely been on the sidelines. You know they want, as a general rule, increasing same store sales, low cost of capital and plentiful development opportunities and cheap development too. And those conditions just haven't been there. In 2024, and so in largely in 2022 and 23 as. So they've kind of created a vacuum in the marketplace. That's been a notable condition that again I hope is going to come come back now, someone told me. This is crazy if it's true. Someone told me that. That at some of the business schools across the country, the professors, some of the professors there, and I can't remember the school or the person who told me. But I've heard it twice. Almost say that like getting into franchising is a guaranteed way to do well. Painting it is a great way to jump into to business post post studies. And I just kind of just kind of shake my head at that. Because it's a very difficult business to do well. But as some of the failures or some of the struggles of these early P/E funds run by these young MBAs. Kind of come to the surface over the next couple of years. I think you know that these folks travel in small circles, many of them in New York and South. Florida, and I think the rebound of new private equity entrance back into the franchise business will lessen a little bit from the 1st wave just because it'll season and have been some failures that are going to get around. And and and be heard. Another item that we talked about was the deals gotten more arduous time frames. If it gotten extended in 2024. You know, we've seen some unreasonable retrans during due diligence. And argue in over small conditions of. It's just what happens when you see parties squeezing both by her and seller and attorney and. Or, you know, all the parties squeezing and it makes for, you know, frankly, just difficult transactions that that are contentious. Franchisors have in some cases become increasingly heavy-handed with their non compete clauses personal guarantee. Please request for development and then which franchisees they're approving. And this last point is a big one. You know some brands we're seeing like some of the brands that are emerging brands that are really growing and have territories that where you have might have 20 stores but they. Stores and they've got the runway to do it. Those younger brands that may have 500 a thousand, 1500 locations are becoming more agreeable to investor LED franchisees, whether their family office or private equity companies. Because they need an infusion of capital. Into their. Brand, whereas you have other legacy brands that are actually doing the opposite developments, not as much of a thing. More about. It's more about maintaining the brand and remodeling the brand and you know P/E is, it has a history of not being very good. Remodelers and maintainers, they don't like to spend CapEx when there's not new new development or. Store sales, so a lot of these legacy brands have been feeling the effect of kind of tired assets. And, you know, broken agreements with those private equity. So they're actually going the opposite direction and saying we don't want private equity anymore. We want people with boots on the ground who want to operate stores and live in the in the markets where they operate. So it that has been a very has been. An interesting trend that has been changing and I guess all this just requires if you're a buyer or a seller or just an operator in this environment. You it requires a careful pre screening before you make a decision to buy or sell an asset. And of course if you hear, hear this and you talk to me a lot or. To me, a lot I'm thankful for that. You. You know you can always find me and or anyone on our team and kind of ask our opinion or how brands are thinking across one another. We tend to keep a good perspective on you know what they allow and what they. How they maintain their franchise base, we're happy to help and give perspectives. There. So that's the second question. The 3rd and final question for the. And I've taken longer than I than I thought I would. So thank you for listening. This is the third question of the. So what is your outlook for deal activity over the next year? What are the key variables that will drive a stronger or weaker M and a environment in a couple of examples might be you know. Operating environment or consumer strength, OK, so. I guess my comment is this. Before I talk specifics, I would just say that I am now quite optimistic about the future of our country. Like many of you who are listening, I'm an entrepreneur. I run a business. And especially in franchisees, you might be listening. I would ask the question like where else would you want to place a bet over the next 10 to 20 years other than the United States, I still think. We are the best country in history of the world, and I'm also bullish now on the future of our country and I think you could really feel it out at rfdc. Like I said at the top of the hour here. Like, I mean there there were there just. Like a cautious optimism, like we've hit the bottom. And that the next you know, you know, it's like that we're going to kind. Try. Will this thing to turn around and I towards the end of the panel I made the comment that I just made to you. And it was met with not a staining ovation, but with, like, a big hearty round of applause in the middle of the panel. OK. Which I think is very rare to see, and so I think people are wanting to be optimistic. People were wanting to change. People are going to try to will this thing to be successful and I think. Momentum is a funny thing it. I don't think it's gonna hit us immediately, but it could hit us over the next 6 to 12 months and we could. Could really be looking at some some mid term optimism with M and a activity and and for our business. There should be a steady of increase of M and a activity over the next few years. There is. This pent up demand that we keep talking about of people who wanted to sell their. But if just frankly been unable to do so because of the valuation gap right over the last couple of years, so that still is there. For the first half of 2025, I think some deals won't close an extension of what I told you with a deal of of deals that didn't close in 2024 increasing supply. Now just hear me here. Increasing supply of deals on the market. Could reduce prices temporarily in some brands. If we do get people wanting to come back to the market and sell their companies because they're ready to retire or monetize again, or they're just tired and we do get a pickup in supply. Supply would pick up before demand. And if that happens in a large quantity in the first or second quarter of 2025, we might in some brains where there are more sellers than buyers see prices, maybe drop a little bit, but I think that's a short term phenomenon. But that could happen. But I do think M and a activity will pick up. Pick up slower than it. Maybe it otherwise would have if Kamala Harris had won, which in that case, you know, people would have been running for the hills to avoid higher taxes on the sale of their business and so. 2025 probably would have been a bigger year than otherwise. You know, for that reason, kind of like we saw in 2021 when folks were afraid the taxes were going up under the first year of the Biden administration. But now that that is, there's largely a non threat. I think people will be a little bit more deliberate and probably want to operate their business a little while and hope for some year over year increases before they sell also with dropping interest rates potentially helping them so. The two biggest challenges that we have right now are a consumer problem and we have way too many restaurants and along with some of the regulatory policy we have in our country, these things will take a little time to fix. No, there's no quick answer or solution. To the consumer problem and too many restaurants. And I think lowering interest rates should strengthen M and A, and we're probably going to see some more interest rates reductions in the next several months and into 2025. But people again like. Said earlier, they overestimate the importance of that. They also. Miss the timing. Really don't see meaningful changes in buyers coming to the market and rates dropping and deals getting you know more attractive until probably 9 to 12 months after the the last of the major rate increases happens or decreases happens. So I think sales and EBITDA increases are just much more important than lowering interest rates, although lowering interest rates will help them marginally, of course. I guess that probably 10 to 15% of our countries franchise restaurants need. Be closed. It's a bold statement, but I I think it's true. Every deal that we see these days. Every. Most deals that we see these days when a franchise comes to us with 30 restaurants, they've got like 5 or 6 that need to close. And some franchisors are very are very difficult to get a store. You have to pay like penalties two years or a year of penalties and on royalty and advertising just to close the store. Some brands. A little more open minded and say, you know if a store is unprofitable, you know shut it down. Some of that runs along the lines of whether they're publicly traded. Or not, right? Whether. About to sell to private equity company, because those franchisors are really incentivized by store count in the new unit growth. But Pareto's rule is in effect 80% of your problems come from 20% of your problem stores, and I think that's probably, you know, good rule of thumb, prerequis. Ite in your portfolio and I would just say, be continue to be dogmatic about. Having the right number of stores and the right number of profitable stores, and don't fall in love with the store that you've held for 40 years, it's no longer profitable. I see that being a big issue, especially with legacy franchisees that they can't let go and can't look at things objectively. If a restaurant is not performing and won't perform in the future. If you're a seller of a good business, then sell it whenever you want to sell it. Will. Good prices and plenty of interest. And that's been true in 2021, also in 22 and 23 and 24. And that'll be true in 2025. There's no doubt about it. Good businesses, like I said earlier, will sell at high prices no matter when they sell. If you. A seller of an average business, the timing will be important to balance what hopefully will be increasing EBITDA in 2025 / 2024. With the minute by minute fluctuations in supply and demand, we talked about, like Carol's being being acquired by a Burger King corporate at some point, it's possible that those stores get refranchised and if that happens and you happen to be a seller of a Burger King bus. There's all of a sudden tons of businesses on the market in that brand. You can understand that that timing might. And lower. Values. So I mean it's just one example, it's not meant to single out any. I mean, it happens in any brand that's going through any change, if there's a big refranchising program that's happening in any brand that they usually flood the market with deals. So that's just one example of how you might in a legacy brand, wanna be careful about how you time an exit of a business. If you're a buyer. It is probably a good time to jump back into the market if you're inclined to do so. Lowering interest rates will help you, right? And valuations have come down and so? If you. With me that we're going to go on a a good run and this is still the best country in the world and our business in our industry is going to survive and it's going to thrive over the longer. And you may not take that for. Do then you know it would. It would seem like we're near the bottom of the through of of a time to get get back into the space and maybe acquire if you see something that you like. I just would say that I project, you know, unbridled revenue in 2025 will probably be flat to 2024, but ramping up in. Back half of the year. But then I think that that 15 to 20% compounded annual growth per year in 20/26/27 and. 8 is. If not possible and probable is very likely, unless we hit some seismic macroeconomic problem that hits us. So I think the future could be very bright. I say put on your chin strap and let's go get em. Let's be optimistic and let's let's make this next few years be really impactful for all of us. And then I left the Convention with a funny little. Clip 3. My all my loters of the Naval Academy, Illinois and Vanderbilt have historically been very bad football teams. But in 2024, as we sit here, all three of them have winning records. And I said, hey, man, the last time, if you make a guess of when do you think the last time all three of those schools had a winning record? Same season. 1982 almost 43 years ago, and so I kind of joked that's a good omen. That's gotta be a good omen for for a rebound in our industry. In 2025 S again, I remain optimistic. Wish you guys the best of overall notes otherwise. From the convention were kind of a A, you know. A similar. There was really nice discussion with Malcolm. He was kind of one of the guest speakers on the mainstage on Monday. He was a former NFL. I I think he might have won a couple of Super Bowls and now he's a franchise of a couple of brands and his story was neat and optimistic. On Wednesday morning, we had Dennis Monroe, who's a long time attorney, interviewed Greg Flynn, the largest franchise. In the world. And he talked about his story of getting into the Applebee's brand and then how he got into Taco Bell, and then all the other brands. They're now part of. That was interesting to hear. Overall, the message of the Convention was constrained or restrained optimism. We still have in the lender community, I hear a lot of picking and choosing, so I hear a headline that they're optimistic. Then when you deal, when you. Pull it. They're very choosy on which brands, which geographies and which situations where the lend. They continue to want to have it deposits. Make a loan which is interesting, but I just think the lending community is choosy, but the overall tone is one of optimism. And so that does it for this episode of the Boil room. Happy Thanksgiving and Merry Christmas. Let's stay in touch and let's go get him for 2025. Talk to you soon. Thanks so much for entering the boiler room today. You can. Our podcast on iTunes, Google Play, Stitcher, TuneIn and Spotify. If you like these podcasts, please listen, rate and. I also encourage you to visit our website at www.unbridledcapital.com for the best franchise M and A and financial resources in the industry. Our website includes webinars, podcasts, videos, white papers, and a list of our past MA. Please note that neither Rick Ormsby nor on vital Capital Advisors LLC give legal, financial, or tax advice. These podcast represent opinions that have been prepared for informational purposes only. We expressly disclaim any all liabilities that may be based on such information. Errors therein or missions therefore?