OK, guys. So I guess we'll just wait for the room to kind of fill in over the next 3 or 4 minutes. And and for those of you who are joining, welcome. We're very thankful you could join us here on this. I don't know, we're depending on where you are in the world, Balmy January day.
Excited to to do this. We do this once a year. It's it's we call it the State of the Union where we kind of look at the year in review, look what look what happened last year in M and A in the franchise space and then we kind of see what's happening in the current conditions of of the world right now and then we kind of project what we think will happen in 2026. So it's a good kind of catch all put way to.
Spend an hour and just kind of learn, learn a little bit that might help you as you as you make your plans for 2026. A big hello to everybody who will listen to this on the Restaurant Boiler Room podcast. Man, Can you believe it? We're in season eight, episode one, and I'm just thankful for all the listeners.
Last I I saw at the end of last year and I don't check the statistics that much. Sometimes you're just talking into a microphone and in the in a basement of a, you know, in a closet and you don't know what's going to happen. But I mean there are times where there's, you know, 5-6 hundred, 700 people listening to the to the.
To to the podcast, each individual podcast and and several thousand who might listen to a lifetime podcast. So I mean that's pretty cool man for something as narrow as this. And I just want to thank you who listen to that especially because I know that you know you you tune in and you spend a lot of time listening to this. So so it's it's an honor.
It's an honor to to have you aboard and to have you listening and watching. So as we wait for the next couple of minutes, we got, you know, any any topics that we want to talk about that of any importance, anything, anything a little bit lighthearted that we could discuss?
Peter Fisher 2:05
What'd you do last night?
Rick Ormsby 2:08
Oh, yeah, you know, you know, I was given two, I was given two of these things and and I only have one remaining. I can't find the bald headed cap, but I got the pitbull sunglasses. So what do you think if I said like Dale, the 305, you know you think.
You think you think I could get away with being a Pitbull like character?
James Derek Ball 2:31
Spitting image.
Peter Fisher 2:32
Yeah.
Rick Ormsby 2:32
Spinning image so.
Peter Fisher 2:34
I mean, I don't think you need the bald head thing. I think you're already there, so.
Rick Ormsby 2:36
I already got the bald-headed thing, man. He's passing out these koozies with and you got a koozie. This is at the national championship game yesterday down in Miami, and he's got his 305 jacket on and the Miami U on the back. You know the you know how you know how it would go, right? You can kind of see it.
And he's passing out these sunglasses and a bald cap, kind of like a Doctor Evil bald cap to everybody in the, you know, who's there. It was, it was quite a, it was quite a show. I don't know if anyone has ever seen Pitbull in concert. I imagine you'd have to be.
You know, at my age, I, you know, I have to have earplugs and you know what I mean to handle more than 30 minutes of it. But man, that guy can put on a show. I mean, he is a, he's a showman. You guys like his music at all?
Peter Fisher 3:24
It's okay. I've listened to it. I've listened to it in the past. Yeah.
James Derek Ball 3:25
If you're at the gym, if you're at the gym, I like it. If I'm at home with the kids, it's not exactly what I'm going to be putting on. I think it depends on the venue.
Rick Ormsby 3:26
OK.
OK.
So to to reiterate, we're I was at the national championship game, didn't really have a dog in the fight, but we're down in Miami a lot. So my son and I, we went and we were kind of like 55 to 60% Miami fans is kind of how we felt about it. And you know, 3540% or whatever or 40 to 45% rooting for Indiana. It was a great.
Game but but you know Pitbull beforehand he had this. He had. I was surprised. Let's see if you guys can do this. Anyone can do this. He he just he he like picked a song. It wasn't one of his songs and he goes hotel motel and then stops.
And then the whole crowd, and this is a bunch of like, you know, Midwestern, chalky Midwestern people, they all go Holiday Inn. And then I was like, wow, this crowd seems to remember the 1980s hip-hop scene pretty well.
James Derek Ball 4:25
Cool.
Rick Ormsby 4:31
So I was. I was quite impressed, I got to say.
Peter Fisher 4:35
Yeah, I don't. I don't know if I know that part of the the lyrics or the songs, but I'm sure it was, it was great.
Rick Ormsby 4:41
Oh man, it was, it was, it was a hoot. It was a hoot. But let's see. I've got some people waiting in the lobby here. We'll go in just a we're actually a minute over. So let's see. It looks like people are trickling in still a little bit. So, so I'll just wait another 30 seconds. But again, just thank you for being here.
And again, if you're if you're listening Season 8, episode one of the restaurant boiler room, very thankful that you've tuned in for all these years. It's a blessing to have kind of people actually listen to what you say. It's it's crazy. We're going to do a State of the Union now. Hopefully that you'll find this hour is is is valuable. You know, if you want to ask any questions, please feel free to do so in the Q&A. We'll try to watch it.
And then ground rules here, you know, don't worry, no fret. If you're on on this webinar, we'll send you a replay and it'll be on our website at Unbridled capital.com as well. So you can catch up. And then the format here is we're going to like spend a probably.
We'll go through like 9 or 10 questions. We'll spend about four or five minutes on each question. We're going to talk a little bit about what the question, the same question from last year produced and then we'll go into the current situation and give you some hopefully a handful of thoughts to think about for this year. And as always, if you have any questions afterwards or as you push into January and February, call us, you know, you know how to reach us at Unbridled Capital.
So here we go. So we've got Derek Ball, we've got Peter Fisher and Raymond Buehner on the line with us. And so let's go ahead and jump into question number one. And I think, Raymond, you're going to take it last year and this year we'll ask the same question, just a commentary as our first question.
On the current supply and demand of buying and selling franchise assets, so go for it.
Raymond Buehner 6:16
Yeah. Thank you, Rick, and thank you everyone for joining. So, yeah, I'm just going to dive into, you know, kind of what we talked about last year. The the first topic was commentary on current supply and demand for buying and selling. So at this time last year, you know, I think we had seven active assignments across five different brands.
Um, you know, we kind of expected it to kind of stay slow in Q1 and Q225. Um.
You know, part of the reason of what we said last year is you know there's not as many sellers when you're having large sales comps, which is kind of what we've seen early on in Q1 and Q2. There were strong rollovers and also cost inflation was starting to moderate and that was helping a lot of.
Existing franchisees with their core operations. And I think, you know, another thing we talked about last year is a lot of people were in a wait and see approach. You know, Trump had just taken office at that point and there was a lot of optimism, you know, kind of in the in the franchising industry and looking forward. So when you know that's kind of the mindset when you think.
You know, things are better in the future than they are today. That kind of limits the amount of, you know, sellers that want to come to market at that point. Last year, let's see, we saw EBITDA multiple start to come up, you know, kind of 1/4 turn, nothing, nothing crazy.
And there was a lot of big interest in large deals last year. We had a couple very large assignments with many offers on them and we also you know branched out to a couple of different brands last year and.
Peter Fisher 7:38
Yeah.
Raymond Buehner 7:49
I think, I think that's about it. So I guess, you know, how's that compared to now, Rick?
Rick Ormsby 7:50
Yeah, good, good, good.
Yeah, it's great. No, it's, it's a no, it's a great synopsis. I think that's that's fine. And so deal flow, you know that the punch line here on buying and selling in 2026, I think the first thing would be wouldn't you guys say that, I mean we have right now 7 deals that we're working on probably you know 6 to $700 million in total transaction size across the same, I mean five brands.
And so that's the same kind of breadth. So we're kind of seeing the same sort of sort of mix like deal flow continues to be light. We have, we feel like it'll probably at this time last year versus this time this year, it feels about the same in terms of the inbound inquiries.
And you you don't see like a lion's share of business coming from one particular brand. It just seems to be more targeted deals that come up one or twosies in different types of brands across the spectrum. Any other comment that you guys see for 2026?
James Derek Ball 8:50
No, I think it, I think it starts to pick up a little bit. We had a note in our comments from last year that you had during this call last year we had had three to four inbound calls in January. My guess is we're at like 5 or 6 now. I'm not sure which of those will stick, but I I think the inbound calls have been just a.
Just a slight tick higher than in 2025. And if we look at like Q4 of 2024, it was dead. There were no deals in Q4 of 2024. Now Q5Q425 wasn't extremely busy, but it was definitely busier than 2024. So it does seem to be picking up.
Rick Ormsby 9:08
Mm.
James Derek Ball 9:25
I don't think 2026 is going to be a gangbuster year. I will. People that I talk to regularly will have heard. I think either this year, next year, 2028 will be a huge year. One of those three, I don't know which.
But I think there's still a massive amount of pent up demand on both sides of the of the deal flow. I don't know what it's going to take to get that to light, but it'll light here soon enough.
Rick Ormsby 9:53
Yeah, there are a couple of other comments about buying and you know buying, selling, supply and demand. We took 15 assignments last year and closed 13. That's you know what, what, what's the statistics on that like 85% closing rate which is a little bit lower than what we normally are. We're usually around 90%, but you know again it's kind of close within rounding.
close within rounding. We've heard some third-party commentary from rather large investment banks that say that 60% of the US deal flow in M and A did not, I repeat did not close in 2025. So you know it was a it was a year of you know and and and you saw some activities you know with some really strong.
Strong franchise brands and then you saw the dichotomy of of some distress that started to happen, you know precipitated maybe by store closures or over leverage in some of the brands have been languishing from a same store sales standpoint. But it is notable if true that that actually and we had a I had a corroboration of this on someone else that also said.
That that number was similar with their investment bank. So about 60% would be a good number of deals that went to market last year and didn't transact a little bit kind of a you know and I had that fear that that would happen in 2025. I mean look we didn't have in the past year the same store sales comps weren't that great and.
In in a lot of the brands where they we saw a notable downshift in Q2 and Q3 of last year and then like it or dislike it, you know we all have our opinions on on the political environment, but you know the ICE raids and everything's you know really affected some brands. I had a franchisee who I know in Chicago who said his his sales were impacted 5 to 10% because people.
Were just, you know, illegal people were afraid to be out in the streets and afraid to be in QSR. We have this growing thing in Ozympic, which I think, I mean, look, it's it's a real thing. 9% of Americans have tried the shot. 20% of American households have at least one person who is on Ozympic.
These are stats from PwC. I heard this just a couple of days ago and it's expected to grow remarkably. So you know Ozympic and you know this kind of thing is it could be the next A I of of food like really like I I think it's that could be that big especially as they put it in a pill format and drop the cost as low as it's been. So there have been some headwinds.
I mean, you know, in 2025, but I think as we roll into 2026, more brands than not are rolling over poor comps and sales comps seem to be up, seem to be up a little bit in several brands, if not a lot in certain brands like, you know, you're hearing like Burger King is really is up a lot with the SpongeBob SquarePants promotion, right?
I mean, you know, Taco Bell's doing really well right now and there's a host of brands whose sales trajectory on a trailing 12 month basis is starting to improve and change. So that's question number one. I think that's probably enough time. What do we question #2 was what do we expect for M and A activity in 2026?
And so I guess this Peter, this is on you visit, go back to last year, what we thought we would hear and and what happened and then let's keep keep going into this year.
Peter Fisher 12:53
Yes. So last year and Raymond kind of touched on it on the on the on the first question, but you know we were really slow at the beginning of the year thought so because the election, we stated that since Trump did win that the M and A market would probably slow down at the start of the year but possibly pick up.
Towards the end, I also thought that since supply would be limited, it would favor the seller because of pent up demand for the buyers. Mentioned positive comps would help with diligence but also and also help hold the valuation throughout the deal process.
But for the later half of the year, comps would be a little harder to roll over. And then we also mentioned a little bit about smaller emerging brands starting to gain some market traction and desirability in the M and A world, which is probably still the case today, honestly.
Rick Ormsby 13:39
Yeah, yeah, yeah. Well said. I mean, I I look back on those comments and that's pretty much how the year played out actually. So we were mostly right. There's a couple of trends that have changed dramatically, I think in in the last three or four months that are gonna affect 2026. So there's.
You know, a couple of themes here that will reiterate over and over again. But for 2026, I think the big trend is going to be and and we're going to have to develop this. So I'll make the comment, make a couple of comments and Derek, why don't you roll into this a little bit too. But we, you know, we're in maybe the 8th inning or maybe now the 9th inning of franchise.
Consol.
Back in the good old days, you know people that you had mid-sized franchisees and a couple of big franchisees in 2015 and 16. You started to see this trend as the Harvard MBA started getting into the space and started trying to consolidate these businesses with the with the principle that they could get in on a reasonable multiple, buy down their multiple, buy by.
And other restaurant or franchise assets at low prices and then develop some stores where it made sense, hold their asset for five to seven years and then sell it for a higher multiple to a bigger buyer. And that and that has largely been a failed and flawed and failed.
Approach over the last couple of years, so much so that in a recent deal we had, it was, you know, over 100 units. We solicited offers for the whole business or in pieces. The whole business got 8 times EBITDA in the pieces.
Has got 10 1/2 times EBITDA, roughly speaking each. So there is as much as a 20 to 30% depending on how high the valuation is of the company and what multiple it sells for overall. There is as much as a 20 to 35% difference.
In selling a huge company versus a smaller company. So what does that mean? It means that these financial buyers can't sell their businesses to bigger buyers. Financial sellers can't sell their businesses to bigger buyers at increasing multiples. And So what do you think they're going to be doing now? They're going to be splitting up their assets and selling them in chunks to owner operators in mid.
Sized strategic buyers and it's going to unfold like a daggone hurricane in 2026. You watch. I've been saying it for 12 to 18 months and this is the year it's going to happen. And what will happen when that happens is all of a sudden you'll have a 400 unit franchisee who sells 850 unit chunks.
And the market can't hold that much supply and demand, you know the demand will will will drop because of it and prices will drop with it. And I think that's probably the big aha point that we would make. There's a couple of other ones and we'll save them of course for later of the conversation. So you guys have to listen, right, a little teaser, but that's really.
Peter Fisher 16:23
Mhm.
Rick Ormsby 16:24
A big trend that I think is going to happen and who does that affect? It affects the midsize operator. It affects the big guy who wants to sell in chunks, yes, but it also affects the midsize operator who has 30 to 40 restaurants or franchise assets outside of restaurants who's wanted to sell over a four to five year period but hasn't been able to miss the.
2021 window and it's been holding, holding, holding, getting older and older and older, knees hurting more and more and more like mine and everybody else's. And then they now think that in 2026, when the trends turn around and maybe the commodities ease a little bit, they're going to sell and they're going to sell for a multiple that they could have gotten close to 2021. But what's going to happen is when this hurricane happens.
And these assets come out in chunks that that philosophy is not going to come to fruition. Comments. What do you guys think?
James Derek Ball 17:14
It's interesting. It's not something that I think that's happened in the past. This will be a first time type of event. We're seeing it specifically, you know, in one brand right now in that brand trades at such high prices that it's tough for people to want to spend the, you know, the amount of money that it takes.
To buy those 200 unit portfolios right now, you're not seeing the PE guys wanting to do that at the top price and you're not seeing sellers willing to sell it at a discount effectively. So you're seeing them being split up. Now whether that happens in brands that are only trading at 5 1/2 to six times, it could.
Be a little different. You know it may be less drastic in that in that situation. Maybe you've got a 300 unit company that trades at six or 6 1/2 and you're just having trouble finding that buyer. Maybe you don't see a massive increase or decrease in multiple necessarily from splitting it into a 300 unit piece.
But you at least are able to transact. You might not find the buyer willing to transact for all 300. And even if the multiple doesn't necessarily change, the only way you can sell it at all is to split it up and find those few buyers. Our opinion is that's what's going to happen.
When that happens, let's just say let's do one example like Rick just used a 400 unit franchisee splitting it up into let's say 8 to 10 chunks of 40 to 50 stores. It's going to flood the market and and effectively, you know when you hear about multiples, people always call us what are what are multiples, you know in this brand or that brand.
You only hear about the winners for the deals. You know, I don't. We don't quote what the average offer was for a business. You hear what the winner paid. And you know, let's say we get 8 offers on a business. There's usually 1:00 to 3:00.
In that tight range where the winner winner was, but then you've got the four through eight that were not. And if you're splitting something into three, you can you you can solve for that if you're having to split things into more than that.
Rick Ormsby 19:13
Mhm.
James Derek Ball 19:21
And you have 8 deals out there, you've got to time it well because there aren't 8 buyers at great prices for those eight businesses. You're going to have to time it over 12 to 18 months in order to do so, and you're going to have to figure out how your company runs during that process.
During that downsizing. So it's going to be a little bit more of a, I don't know, more more of a thought thought challenge on on how you keep your business or running well, especially with your team seeing you downsize at that time because you can't just throw 8 deals on the market at once.
That's not gonna work. You're not gonna get Max price, nor could you do 8 deals at once as a seller. It it's that's too big of a lift. So it'll be interesting to see how that plays out.
Rick Ormsby 20:02
Yeah.
Yeah. And I think this affects and you know, like I've been wrong a lot of times in my life. This is just a this is just an opinion and a perspective. But I think I'm pretty, I think I'm going to be right about this. It's going to have a, it's going to have a draconian effect on this industry over the next couple of years like we have all of a sudden gone from.
You know, wearing short shorts on the basketball court and and socks up to our knees to now we're wearing baggy shorts and no socks. You know what I mean? Like it's a it's a it's going to be a seismic change as we unwind a lot of this consolidation and it's going to happen not just with the hot brands where they have oh uh, I have 300 stores. I thought I was going to sell it to a group in.
James Derek Ball 20:27
OK.
Rick Ormsby 20:38
You know, in Dubai or Puerto Rico or wherever for a massive multiple. But now I can't. They don't buy them anymore. So I'm going to split it up and sell them to strategic buyers who are already franchisees. That's not at at higher prices. That's not the only way this is happening. It's like I've got a 50 unit company now or a six, let's just say an 80 unit company that has.
Has 1,000,003 a UV's, 9% rents, some remodeling requirements and no fee and no fee properties in there and it's showing like 3-4 million of post G and A EBITDA like like no no one is going to buy that business because on the other end you have.
A buying community who are mostly strategic buyers who don't want to sign up for all of those leases. And the people who drive the pickup trucks in Des Moines, IA and want to operate 30 or 40 stores don't see, don't see these leases in the same way as a private equity or family office would. They don't say, oh, I'm, I don't care whether I own.
The real estate or not, right? They don't say that and they don't say, I don't care if I sign up for a master lease or I don't care if I sign up for 50 leases here. You know, they're looking at like, yo, I got to sleep at night. If I'm going to take on 50 stores that are barely profitable and I'm going to have to sign up 50 leases and the average lease is $80,000 a year, that's 40.
$1,000,000 in annual or whatever the number is, lease liability, $4 million in annual lease liability. I can't do that. So it's going to force, it's going to force the consolidation to unwind at the lower end as well. We saw a couple of things and I know we got to go into the next question. We saw a couple of things this year. You know that there was a continued to be a bifurcation.
Big brands that are doing awesome, continue to be going hard at big prices and a lot of interest. And then, you know, we've seen the bankruptcies start to unwind. Maybe the the bankruptcies are starting. You know, you kind of have to, what is it, you know, separate the wheat from the chaff, Bible terminology, right. So after a while you can cull.
And you can get back to what's normal, but but usually like a bad cold. I think, Derek, you got the flu, right? Usually you feel worse right before you get better, you know, and sometimes the bankruptcies and the distress and the store closures happen at the very end of a cycle that's that that's about to turn around. But clearly we've seen several notable examples in recent.
There was a big Popeyes bankrupt Chapter 11 that was just announced this week and several others on the docket too. So that's that's something we're we're noticing. OK, that's a lot of Rick talking. What about question #3? Everyone wants to know about EBITDA multiples. Let's do a deep dive on EBITDA multiples where we were, where we are, where we expect to be for 2027.
Six. I think it's you, Raymond. Fire away.
Raymond Buehner 23:15
Yeah, just jumping in here. So next topic is EBITDA multiples and cap rates. So a lot of the commentary last year, we said EBITDA multiples were leveling, if not slightly increasing, probably 1/4 turn.
Specifically in the legacy and kind of struggling brands, you know, those have been coming down for quite a while and last year was kind of the first point where we saw them level off and you know, increase in some cases the hot brands, you know they're still.
Well above historical pricing norms, there's a few specific brands out there that are just well and above the rest. And we're also we're seeing emerging brand franchisees, there was less than expected deal flow and that kind of you know what we posited last year was an inaccessibility to financing.
For some of these newer up-and-coming concepts still at that point, see we talked about how geography is also a major factor and can be as much as a, you know, one turn gap depending on the area of the country you're in.
And also kind of, you know, it's funny we said this last year, we said the stock market was fully valued last year, rates coming down on market on money market accounts as well. You know, very, very interesting just given where we are today.
Rick Ormsby 24:32
Yeah, wrong about that one, weren't we? You know, wrong about that one. Yeah. Who would have thought, you know, that's good. That's good. I mean, you know, one thing I wanted to to make a comment on from the last comment about the supply and demand I I typically get, you know, a lot of these inbounds when when someone decides they want to sell or finance their company.
Raymond Buehner 24:36
That.
Rick Ormsby 24:52
They'll call me. I would say like last year at this time we had three or four of these inbounds. Derek says we've had five or six. So, so they're a little bit higher on the franchise restaurant side. But in the last like 90 days I've gone from like last year I had one or two phone calls. This year I've had like four or five phone calls from emerging brands.
I've got a phone call from like a GNC type brand recently, a fragrance franchise recently, a window franchise, I mean like you know what I mean. So and these businesses are gradually but surely kind of building enough EBITDA.
To hit our radar like one of them had $1,000,000 in EBITDA, one had a couple of like 4 million in EBITDA, one had like you know like 6 million in EBITDA, right. So, so these businesses are going to, I mean, I mean I can just feel the momentum coming. I mean we do still 90% of our businesses restaurants.
But probably now 30 to 40% of the phone calls I get are out of restaurants or not restaurants. And I think that number is probably going to continue to slightly change on the uptick as we go into 26 and throughout.
Multiples are typically in three buckets, right? So bucket one is the top tier brands like the Taco Bells, the Wingstops, the Planet Fitnesses, the, you know, 7 Brews, you know, maybe a little bit of the Dunkin businesses, you know, maybe a little bit of the Jersey Mike's. There's others, but these are the ones that might sell.
In the 9 to 11 times EBITDA range and they're selling their, the brands are doing great. There's tons of interest. Everybody wants to buy into them and that has not changed much. If anything, it's maybe gone up, maybe even a little bit more, but it's probably stayed about flat since this time last year. The second bucket is these businesses that are selling for like somewhere.
Between 6 and 8 1/2 times EBITDA. And I just, you know, there's a lot of, there's a lot of them in this bucket. This could be something like a Zaxby's that has like a decent chunk of stores, but really good performing stores in a certain geography that has a lot of interest.
It could. So it could be a brand that's kind of somewhat emerging that has really good performance. It could be a brand that's kind of high and doing well, but not quite on the same tier as as one of the first tier brands. There's there's a bunch of reasons why you'd be in that bucket that they they have done OK to well in the last year and and obviously.
A lot of more emerging brands are hopping into that bucket as well. The majority of the brands are sitting in the three to five times EBITDA bucket now. And these are a lot of the legacy brands that we've been working on for, you know, a lot of years. You've seen them. They're the ones that have 3 or 4005, six, seven, 8-9 thousand stores.
You know them they're they've had same store sales and negative comps, store closures. Those brands are are certainly, you know, kind of languishing still. Obviously a lot of the burger brands have had a a big uptick in beef commodity costs that we don't think are going to.
They're going to subside until probably the the second, the end of the second quarter of this year, but we should get relief in 2027. It's a material impact on EBITDA. Some of the other comments is geography. You talked about geography. I mean, heaven forbid trying to sell an asset in Minneapolis right now, you know what I mean? Like, you know, it's just things like this that make a big difference and it could be.
More than the one turn of EBITDA that Raymond just mentioned, that would be the difference between like 5 times EBITDA and 0 times EBITDA, you know. So in there that bifurcation is happening all over the country. You know, people in Texas still want to buy things in Texas at big prices. Same with same with states like Florida and Tennessee and you know, North Carolina and Georgia, places like that.
That any comments that you guys might have on on EBITDA multiples? I know I've talked a lot, sorry.
James Derek Ball 28:34
You know, one of the things that we were talking about earlier, Rick, is, is how do you get the multiple up? If you're a potential seller, how do you kind of prepare your business? Not, not, not in every aspect, but how do you prepare your business to to try and maximize that multiple first and foremost?
Rick Ormsby 28:39
Yeah.
James Derek Ball 28:52
Get your EBITDA up. Just just just operate your restaurants. Well, that's the one thing I think the most important thing that you can control. I think so much more than it used to be in franchising with all the national advertising, the local advertising so limited.
You know, if you're in a brand that's just in a rut, there's limited things that you can really do it. I mean, the brand itself is essentially the end all be all when it comes to marketing and LTOS and all that stuff. You can't necessarily control it and a lot of brands don't care what you have to say.
Ultimately, that's just unfortunately the way it is. And you have limited the local marketing dollars unless you're dipping into your P&L to really do anything because it's all going to national. Operate your stores well, don't cut corners, maximize your EBITDA, close underperforming stores. Now some brands are a little bit nicer than others, but.
Rick is always very loud about closing the stores that are dragging your business down. It's not just EBITDA. If it's a couple 100 negative EBITDA, couple 100 grand of negative EBITDA, absolutely it's going to materially improve your price because buyers will factor that into their price. They don't just.
Wipe it out and call it a 0 like franchisors like to do when they're refranchising. That's not how the real world works with with franchisee to franchisee deals. But you know, if you can just get those out of there, it just attracts more buyers and it will improve the multiple as well on the rest of your stores because it's not dragging your business down.
Rick Ormsby 30:13
Hmm.
Mhm.
James Derek Ball 30:23
Down and if you have 10 out of say 40 of your stores dragging it down, it takes a it takes a really nice 30 unit business that would find multiple suitors and and makes it almost unsellable, literally almost unsellable and we have some comps that that demonstrate that.
Negotiate remodeling requirements if you're able to some brands, every brand's a little bit different. Some brands don't allow negotiations, some brands do. But if you can, you know, I don't know if if these are $1,000,000 requirements, you know some brands only have 250, $300,000, those are.
And manageable. If you're in a brand that's forcing 500 to a million on a remodel and your store's making 50 grand a year, that torpedo's a deal because the buyer's going to factor that in and effectively that asset just became a negative value.
And then if you've got good stores with short-term leases, try and get some extensions on those. If you've got bad stores, don't get extensions, just try and get out of them as quickly as you can. But if you've got good stores with three years left on a lease, buyers are going to look at that as a risk. So get get get extensions or options on on on profitable locations.
Rick Ormsby 31:36
Yeah, yeah, well said. No, I think that's great. I mean, I yeah, I've just said it over and over again. I live my life this way. So I mean, I live my life open book. Yeah, I I I live by Pareto's rule 100%, which is like, you know, the 8020 rule, right. So like if I'm operating restaurants and I'm not, I have to run a different business. But I I I.
James Derek Ball 31:36
Anything I missed there, Rick?
Rick Ormsby 31:55
I like, don't try to fix the things that are going really poorly. I just dump them, you know what I mean? As quickly as I can and focus on what's making me successful. Like, why would I be struggling? You know, so take that mentality to your restaurants now. And now I also admit that when you sign long leases.
You know, and you have a franchisor breathing down your neck. You can't maybe act as cavalier, as I'm describing, but you, I mean, you can put pressure on the franchisor. If it's a store that's terrible, you can negotiate with them. You can take another development ask in exchange for a store closure. You can sublease a building. There are tons of emerging concepts that are really.
Killing it. Especially if you're a legacy franchisee who's on the corner of Maine and Maine and your store's not just working anymore, but Chipotle would kill it there. So, you know, be thinking that way. You know, you shouldn't be spending time on your losers if they've been losers for a long time. They're never going to be winners, right? So.
That's just the way, that's the way I think. I'll talk a little bit about cap rates and I don't think we need to visit last year's cap rates. I'll just kind of throw some points out. You know, we have a friend, Chris Lomuto, who helps us with some with some of these, you know, cap rate analysis and things, but I'll just read some of the stuff.
You know like it looks like across all sectors 6.2% cap rate is it, you know it's fallen about 20 basis points is about where the comps are showing us that it's that that it is. So the pricing is getting a little bit better for people who are selling things probably because interest rates are going down and some of the supply and demand is becoming slightly if not.
Marginally more favorable for sellers. Now we're talking about 1031 real estate, not not real estate investment trust buying things in bulk. We're talking one off restaurant sales. So you have to be very careful about what you interpolate here. People throw around the like.
Inappropriate cap rates at all times. And like I had just a discussion with someone down here in South Florida and they thought the cap rate for, you know, single property real estate was like a full turn worse than or better than what it was. And you know, like when you're talking to something in the fives, you know, like one full turn is a whole 25% off on the value of your.
Real estate. So he thought his real estate was worth 50 million and I thought it was worth 37 million. That's a material difference. So you need to get these numbers right. But it it just looks like we've seen, you know, we haven't seen a whole lot of REIT sales. The activity in the marketplace would be similar I think to the franchise M&A space.
Cap rates have gotten a little bit better and there can there continues to be a gap of about a little more than 200 basis points between probably the worst trading sector which continues to be office and the best trading sectors which are either QSR or maybe convenience store, gas station kind of kind of things. And then in the middle you've got the car.
Car washes and you got the grocery stores and the industrial, you know, you know type of buildings. So that's kind of where the cap rate market is. And of course it changes a lot based on the area of the country. What something is in Iowa and South Florida are going to be way different even, you know, even with the same asset on top of them, so.
Any comments there? Probably not anything material. We'll move on to the the next question. Who's got this one? The lending market? What's happening to the lending market?
Peter Fisher 35:05
I can take that one. Well, last year at this time for, you know, for lending, most lenders seem to be more optimistic than in recent years. You know, with such little activity across the space, we thought lenders would be heavily competing for new business.
Which would ultimately favor the favor the seller. However, we did mention that struggling brands and or business would still find it a little challenging to find good financing terms. Overall, we thought the lending market was in a good spot for sellers or for buyers.
Well, at least adjusted leverage was very important and in that five to five to five range, 55 range, a greater focus we placed on fixed charge due to higher interest rates taking up most of the fixed charge. This year SOFR has dropped almost 100 basis points versus last year. I think last year we're at about 4.5.
4.5% this year we're hovering around 3637 and most deals are priced on so for plus 2 to 300 basis points, but obviously can be a little lower or higher depending on the brand of the business.
Rick Ormsby 36:10
Yeah, yeah, it's great. Most of mostly any other comments there. I mean I I guess I would say you know one of the one of the things that that just and we have we always have a couple of lenders on the on this panel you know just listening. So they'll they'll probably.
Someone make a comment to me if you if you don't agree. But lenders typically look at things in arrears, you know, kind of not quite like a CPA, you know, who looks like a year in arrears. We look at things like at the moment they happen, right. So we're like, we're like watching the, you know, like.
What it happened the minute it's happening, an M and A advisor, a bank typically is somewhere between three and six months behind. So they're typically getting the prior quarters financials for their covenants and things.
And sometimes those things are in arrears. So we could be as much as six months in in in and they're behind. And so they may not always have the most current view of the marketplace, which is why they listen to people hot heads like me yapping all the time. And I'm I'm thankful for that, you know, a lot of good friends in the commercial lending world, but they but but I think just in.
General, you know they you've got to be careful that you understand what your last three to six months have been and what the next three to six months of your business are going to be as you put a business for sale or as you're buying a business because your lender may not always be in step.
Yet with the current trend and you don't want to surprise.
Peter Fisher 37:37
Yeah.
Rick Ormsby 37:38
Hopefully that made sense. OK, #5 now.
James Derek Ball 37:40
You know, one question we get a lot is, is do you see any seller financing? I figure this might be the question to bring it up. Interesting, interesting question. In the past we thought, you know, things would have to get, you know, kind of bad, you know, to the point where lenders weren't, you couldn't find debt, things like that and essentially seller, seller financing or earnouts, things like that.
Rick Ormsby 37:45
Yeah.
James Derek Ball 38:00
My new theory is things will have to get extremely bad, worse than anybody on this call would ever want to see for sellers to really start throwing that out there very often. I mean, even over the last two years, we've done no deals, I think with seller financing.
We did one handful of years ago in a special circumstance type of thing, but not a traditional seller financing situation. So I'll tell you all, if you all ever start hearing about QSR and other industries I think are a little different when it comes to earn outs and seller financing, but QSR with the national lenders we have in this business.
You start seeing a lot of seller financing and and earn outs.
My guess is things aren't going well and and worse than we could ever imagine, considering we haven't seen like any of it the last few years. So go ahead, Rick.
Peter Fisher 38:42
It's not good, yeah.
Rick Ormsby 38:50
Well, good. That's a great comment. It's a great comment. Burger. I have a question here coming in. What about burger brands? All right. What about burger brands? We have Burger King, Five Guys, Habit Burger, et cetera, et cetera. What do we, what do we comment, comment guys, what do you think?
James Derek Ball 39:05
I think he was asking and when we were talking about multiples, you know in terms of in terms of five guys and habit, honestly we don't really have a whole lot of comps there. We don't hear a lot of deals trading. We see things posted online.
Rick Ormsby 39:09
Oh.
Yeah.
James Derek Ball 39:24
Oftentimes that that that we never hear about actually closing or or comps in terms of Burger King, it's hard to tell. I mean prior to November or December, you know I would have thought somewhere between 4 1/2 and 5 1/2 depending on geography, the quality of the business.
Account, EBITDA, things like that. That's probably the range it would have been. I don't know about about post SpongeBob. I mean, we were hearing massive up comps. I mean, apparently to any QSR executives out there, you just throw SpongeBob on something and you'll see a + 20 immediately.
Rick Ormsby 39:57
Mhm.
James Derek Ball 40:03
That's every brand should just start partnering with SpongeBob, apparently. Just make sure you get enough product. But so I don't know, I don't know. I think the multiple range probably hasn't changed much. Obviously they've got better EBITDA now. Maybe the 4 1/2 to 5 1/2 is.
Rick Ormsby 40:04
Yeah.
And Wendy's did it too. Yeah.
Mhm.
James Derek Ball 40:22
75 to 6 now, depending on all those factors, you know that Burger King seems to be doing pretty well compared to a lot of the legacy legacy brands right now, but.
Rick Ormsby 40:34
I mean, traditionally speaking and Wendy's has gone through some struggles recently. Traditionally speaking, Wendy's was probably more towards the upper end of what of the of the model that we we would kind of follow. I mean, you can't really buy and sell McDonald's freely, so we don't consider those as much. And then you have a, you know, a bunch of burger brands that are down here in the three to four times EBI.
Range right. I don't want to mention them just not fair to them but but but you know and then most of them would kind of be in this 5 to 5 1/2 times EBITDA range just traditionally speaking you you know but but but I think we speak sometimes a little bit too much about the multiple and a two and and two and a little bit too infrequently about the EBITDA.
So the multiple could go from a 5 to a 5 1/2 and that's really just a 10% increase in the value, right? I mean, and that would be a pretty big jump in value. So whether I say your business is worth 5 1/2 times EBITDA, five and a quarter times EBITDA, 6 times EBITDA, we're really just talking about 10%, but the EBITDA itself.
Has fluctuated by 50% or more in some of these brands over a couple year period, right? Like, so in the burger brands, when you say what about the burger brands, my comment is high food cost right now. You know, really high beef prices. Have you been to the Kroger or wherever Publix recently and tried to buy Chuck ground Chuck? Holy cow, it's like.
I mean, I don't know what the heck has happened, but it's hopefully going to be coming down, but it's going to take a while, you know, so we got that kind of thing going and I think there's been also, you know, there's been a lot of trading. I mean the burger space particularly has a lot of trading. It's like a 0 sum game where some are up and some are down. Right now Burger King's doing.
Pretty darn well and Burger King would be one that is building a good trailing 12 month P&L, aren't they? With the SpongeBob promotion and then several quarters, I think certainly months behind of positive sales. So they're try there. I don't know the number, but at this point in time Burger King.
It's probably trailing 12 month financial statements got to be 5 or 6% up in sales over the prior TTM and that's typically a good time to sell. Now the old timey folks got this wrong all the time and they said, oh, we're only going to sell something when times are bad and we don't want to operate it anymore. It's not the time to do it. Time to sell.
Something is when things don't go in pretty well, because that's when someone wants to buy it and they'll close it without retrading it because the bank won't finance it. So if like you're a Burger King franchisee, you're stepping into a year, especially this spring, where you've had a pretty good 12 months. This would be a time if you're 70 years old or whatever, or you're want to move to Africa, whatever you want.
James Derek Ball 43:00
It.
Rick Ormsby 43:12
Want to do this might be the year, especially in the spring to be to be kind of looking at your PNLS and and making some decisions I would think. OK, question #5, we don't, we're not going to get through all 10, but that's OK. We'll just go till the hour and then we'll we'll end.
Question #5 is yesterday's buyers or family office and PE consolidators who are today's buyers. So we kind of, we kind of knew that trend was starting to to you know last year and it certainly exacerbated this year. Go ahead, we're summarizing last year.
Raymond Buehner 43:42
Yeah. So last year the answer we gave to this question was it was primarily strategic buyers have kind of come in and taken over a lot of the P/E purchases that had happened in prior years. You know, part of the reason for that is, you know, P/E, you know, they talked to each other. They had been burned on a couple, you know.
Pretty notable transactions and what PE groups were looking for is development, upside and sales growth. And you know, frankly there weren't a ton of brands that were doing that at this time last year. You know, we also said you know, kind of mid-size franchisees, they were also coming into the space.
And existing franchisees who are maybe you know slightly under capitalized that you know have some positive sales and are you know put embedded equity into the acquisition, those are some of the deals we were seeing last year.
Rick Ormsby 44:30
You know and now you know like one of the trends has got to be and you get, I'll just put it out here and you guys talk about it like we've got a Freddy's deal, 4 offers, most of them from outside of the system, you know what I mean? We got a Popeyes deal over here, couple offers, none of them are inside the system. So, so how is that factored into this this year as well?
What do you think?
James Derek Ball 44:53
Yeah, it seems like. So on those two deals, you know, out of the 8 to 10 offers that were received, only one of the buyers between both of those transactions was within the system, which is interesting. It's usually not that way. It's usually the opposite. So I mean, generally speaking, as we've said on this call.
We're not real optimistic. There's a lot of PE groups out there looking to buy massive companies at strong prices. But that doesn't mean outsiders aren't coming in. They're just a little bit different of a makeup. Like these were fairly small sized transactions, you know, 10 million or smaller in terms of deal size.
You know a couple $1,000,000 of EBITDA each. So not not not massive deals, but they were attracting groups that were kind of starting a second career looking to get into franchising. That's that's kind of the makeup of most of the buyers that we're offering on those businesses.
So all the news and franchising can't be bad if we're still bringing in new people all the time, you know what I mean? So, but it feels like the larger deals where you've got to put in 50 million of equity or more, those are the ones that are getting a lot more scrutiny from the PE groups and they're.
A little spooked. They're a little spooked at the franchisor situation than a lot of brands having the control they have and seemingly trying to take more and kind of at the whim of the C-suite. Really. Do you have a good marketing department this year or do you not? And that seems to like make or break franchises nowadays and there's nothing as a franchise that you can do about it. That's why you see, you know in.
2025, I think most of the PE deals I saw were franchisor deals. They like that control. So PE is not like not spending money. They're spending plenty of money. They're just a little more picky on where they're putting it. But these small to medium sized deals are attracting.
Rick Ormsby 46:29
Mhm, mhm, mhm.
James Derek Ball 46:42
Kind of medium to small outside groups looking to like make an investment, maybe their first one, maybe their second one. Um.
Rick Ormsby 46:50
And that's probably the second of our of our big insights for today. The first one is we're at the end of the consolidation phase, right. And at the end of the consolidation phase, all these businesses are going to break up and sell in pieces.
Whereas they were going to be sold to a consolidator or a larger buyer, and that has repercussions for the franchise system, no matter if you're a big franchisee or you're a midsize franchisee, because the supply demand dynamic is going to change dramatically moving forward. That's the first big, big point.
The second big point, and I think it's as equally big, is that the risk return model in this industry is changing. It's changing and it's attracting a different type of person to it. In the good old days, you would look at franchising and restaurant franchising particularly as like.
Up one or two points, down one or two points in same store sales. EBITDA is relatively flat year to year. It was a good cash driven business with a 90 plus percentage success rate. You were hitting singles. Maybe you could slide into second with a double, but that's how you were doing it right and it was a good predictable long term.
Business, hold the real estate, keep it, build a legacy, do it over a long amount of time. You saw all these friends of mine who made all the money in the business over a long amount of time, not a short amount of time. And then they would gradually start trickling some of the dividends and money they're making into other things, other businesses, other real estate, other ventures. And that's kind of how they they they grew their net worth.
You know, today's franchising model is different. It's not to say that it's better or worse, just different. It's much more peaks and valleys. I mean, come on, look at the last seven or eight years. It's crazy. I mean, this is not, this is a business where you could either go in and you could strike out.
Whereas that wasn't really easy to do, maybe as easy to do in the past. Or you could go in and you could hit a triple, whereas that was not very easy to do either in the past. It's just the risk and return has changed. The peaks and valleys are way different and these brands are moving in and out of favor at a much quicker pace based on.
Peter Fisher 48:54
Yeah.
Rick Ormsby 49:02
Consumer preference based on Uber Eats and all that stuff based on Ozempic, you know, like whatever it might be, but also based on the management team of the franchisor, which seems to continue to be in one door and out the next with someone else with slick and fancy shoes who stays for two years.
So, so you know like so that is in of itself the change in risk reward profile changes the type of person who buys these businesses. It just changes the very nature of it. Now you might see 340 year old guys who had the.
Background and salesmen at Medtronic and I don't know, they're making this up and they may have $4 million. They're smart, but they're not PE guys and they want to go and operate a private business and they come together and they buy a 40 unit franchise that you could.
See how that model would play into a world of different risk and return as opposed to this hitting singles, 1%, same store sales up and down. Any comments you guys would have or we can move on? Sorry, I got going there.
James Derek Ball 50:14
Oh, good. We got a couple questions here that I'll just hit real quick. One, which area of the country commands a higher multiple? You know, someone came in behind that question and kind of answered it. Blue state versus red state. There's exceptions to everything, but.
Rick Ormsby 50:18
Yeah.
OK.
James Derek Ball 50:30
You know, and I'm not going to name the states that I would list on the bad side. We try not to ever call out things if it's not a positive. But there are a handful of states in the country that are becoming extremely difficult to sell. There are exceptions. If it's a Taco Bell business or a Wingstop or a Seven Brew, you know there are.
Exceptions. But if you've got a struggling business in a state that's not real friendly toward businesses, it's going to be tough and you're going to take a massive hit on your multiple.
Someone asked about Hawaii, Puerto Rico. We don't really do. We haven't really historically done deals outside of the mainland.
Rick Ormsby 51:08
Oh, you you just probably haven't listened to me talk enough if you ask that question because I'm just a crazy man who gives examples that that don't mean anything. So I I didn't mean anything about Puerto Rico, you know, other than it's in my mind with with no state, you know, no income tax if you're an Act 60 residents, you know, but but no, it was no, no comment on Puerto Rico particularly.
James Derek Ball 51:09
2.
Rick Ormsby 51:28
But there are multiple differences.
James Derek Ball 51:29
But we don't. We don't know. We don't know what the multiple differences are in Hawaii, Virgin Islands, Puerto Rico versus mainland. We don't have comps for that. We don't do.
Rick Ormsby 51:40
But like anything we could probably, we could probably opine, I think we would opine and I think be correct in this that it's all about supply and demand and anything you have in your life, right. So the supply and demand in Hawaii and I'm part Hawaiian, I don't know if you can see I kind of got the Hawaiian skin. I'm part Hawaiian, so I know the Hawaiian Islands well, they it's just not as much demand there, right.
You know, you may, you know and part of the demand is going to to buy something is going to be coming from Australia and New Zealand and maybe China and Japan, right. But but overall it's not going to have as much demand as something that's going to be sitting in the middle of the United States just because of supply and demand. So yeah, you'd think.
James Derek Ball 52:14
We have another question that's gonna be how, how do you see lenders, you know, getting credit for pro forma adjustments? This is relevant. We talk about it with sellers a lot. You generally will not see big pro forma adjustments from unbridled deals.
You will see if a store is new. Obviously we're going to proforma that. If it's been open three months, we're going to show a full year. That's the store you're getting. If the store was shut down for a massive remodel for three months, we're generally going to try and normalize that as well.
You don't see us. If you just took a pricing increase yesterday of 5% and you want us to pro forma that for a year, we're not going to do it. And buyers and lenders won't pay for it either if you have good comps and you're up 15.
For a period or two, that's fantastic and we're going to try and get some value there. But ultimately you can't just pro forma that through the rest of the year and get value. Lenders will not give credit for it and buyers won't either. So generally speaking, you know, reasonable pro forma adjustments.
You have to be able to defend them and not just, well, I think this is going to continue. It has to be very rigid, you know, and and provable or else you won't get credit for them. But you'll rarely see those types of things from us. You see some of that from our competitors every now and then.
Rick Ormsby 53:29
Mhm.
James Derek Ball 53:40
And when I talk to buyers about those, they they tell me very clearly they're not paying for it. So it's not something you'll see from us generally.
Peter Fisher 53:49
We might show it as an example, but we won't actually pro forma until the valuation just to kind of give you an idea of where it could lead in the future.
Rick Ormsby 53:57
Yeah.
Yeah, it's well said.
James Derek Ball 54:00
So we've got five more questions in in 10 minutes. Rick, is there a one or two of these five that you think are more important to speak on than the others?
Rick Ormsby 54:11
You know I don't really, I I I'm just looking the bottom the final two from last year, we just kind of we can pass by those. How about why would you sell now and considerations for a buyer doing a deal in 2025, those would be one buyer and one seller question.
You know, you know if you, why would you sell something now? Well, gosh, you're getting older. We talked about that, right. You know, maybe, maybe, you know, maybe you're five years wiser and the stock market's up 70% in the last five years and you might take 15% less on this business, but you've got it. You just look at it as kind of a return on your life.
And you're in, you're in a decent place to do it now. You know, I I think sales have, you know are are going to be trending upward probably a little bit in 2026 depending on the brand. I even think some of the pizza category will start turning around not because there's a baseline great shift in the way pizza's doing business we've all.
And the Wall Street Journal front page in the last week about how pizza is getting killed by all the, you know, by all the other QSR kind of, you know, entrance and such. But but I think they're going to be rolling over such low sales over last year that eventually comps are going to be turning positive. You're going to see maybe some commodity costs mitigated into Q3 and Q4.
Of 2026. So generally we're getting this like slow rebound, you know that kind of and hopefully it continues to kind of build on itself without major problems geopolitically or what have you. So that would be one reason to sell into a slightly.
Optimistic kind of time frame, you know and I I think we'll we'll see also with the big influx of emerging brands that are calling me all the time. I just, I just kind of would say they're getting stronger, you know they're getting way stronger and you know pretty soon they're going to be stronger than you.
You know what I mean? And so you know, so, so you may want to consider that as you as you think about your timing and plan. You know financing is there. If you have decent comps, there's plenty of deals to finance. 60% of the deals last year didn't make it to the finish line, which means that you still have commercial banks that are foaming at the mouth to make loans.
That didn't happen. So I got to feel like the the the environment for for lending is is fairly optimistic and rates are declining. So buyers are going to be able to pay more money typically and get financing a little easier than before. That's probably you you guys have any comments to to to that?
James Derek Ball 56:40
This is, this is going to be very specific to the brand. And again, we're not going to exactly name the brands here. If you've if you've got, if you're in a brand that you might be worried about this, just feel free to give us a call. But as soon as that, what would you call it, Rick, the.
The the unwinding of the consolidators starts to occur. And again, this is going to be brand specific. You know that 10 deals in a Burger King might not affect Sonic, for example, too much. But if you're in Burger King and you want to sell, it's going to affect you.
So if you come out, if you're if you're looking to sell and you want to go out right after that happens, it's going to affect your sale. It's going to reduce the value of your sale. But again, that's going to be brand specific. There are, there are plenty of brands where you probably don't need to really worry much about that and there are others where it might be a pretty big.
Deal. So that's not gonna be a macro comment to all QSR.
Rick Ormsby 57:37
Yeah, well said. And then remember the the big theme that we talked about, if you're going to, if you're scared, if you think what we're saying is right and there's going to be an unwinding of the consolidation, it's very possible that depending on the brand, depending on the time that in the next 12 to 18 months you could see a flood of stores for sale in your in your system.
System that could knock your multiple down pretty hard. And so you, you know, if you were going to sell something, you should get in front of that trend. Don't be the guy who's going to sell in January of 2027 or October of 2026. And then everybody sticks their stores on the market and cuts them up into 20 unit chunks throughout the year this year. All of a sudden your strategy will.
Shoot you in the foot, you know what I mean? It hurts you pretty badly. You could lose millions and I believe that it's it's it's very possible that that could happen. Last question then would be how about this some buyer considerations when doing a deal in 2026? What did we say last year real quickly?
No problem. We could. We'll move on if we we can't get to that answer real fast. Let's talk about 2026. Yeah.
Raymond Buehner 58:45
Yeah. So last year here I got, I got it, Rick. Uh.
And by considerations, talked about Q1 sales and traffic, how is that looking? There was a lot of cold weather last year, which is, you know, so far this year it's been OK like that could change, but that was a big topic last year. Commodity costs, that was another large concern.
Pricing opportunities, you know, how you know is your pricing compared to maybe the neighboring franchisee. That's a big lever that you know, buyers need to consider. You know, look at the, you know, kind of what stage of the brand are they in, you know, is this a growth brand, a legacy brand, you know and how's the relationship you know with.
The franchise or um, those were kind of the key talking points last year.
Rick Ormsby 59:32
OK, what what comments would you make? Anyone feel free to chime in on buyer considerations?
James Derek Ball 59:36
Yeah, I think the, I think a couple of big ones this year, you know, if if you're looking at a deal, beef prices, they are pretty high this year. That's upside for a buyer in the future. I mean, obviously it could get worse. I guess I can never say it'll always get better.
But I think most people believe it will get better in 2027 or late 2026. So that that's potential, that's potential upside to a current PNL. If you're a buyer looking at it, obviously you can come up with all sorts of other negatives, but that's a real potential benefit. Development requirements, what is?
Is the brand asking for? How much do they cost? Can you get dirt with it? That's a big question as a buyer you should be asking. Some brands are a little more stringent on others or than others, and kind of a more holistic comment is.
Do you like your franchise or like I mentioned earlier, you don't have as a franchisee in 2026 you don't have in in in bigger brands, you don't have the control over your business like like people may think they do.
I mean, it comes down to do you have a good marketing person right now? Do you have a good, you know, a good C-suite? And if you don't, you're going to struggle. Like Rick said, it seems to be way more peaks and valleys and it seems to be very dependent on what the franchisor is doing.
Do you like them? Do you get along well? Do you feel like you have a voice? Can you? Can you actually get a hold of someone at the brand and voice a concern and feel like they care if you don't?
Should probably think about the brand you're in, because more often than not.
Rick Ormsby 1:01:19
Or go to sleep for two years and wake up two years later when it changes.
James Derek Ball 1:01:24
Yeah. So do you feel like you're a burden to your franchisor or do you think they actually appreciate you? Those are the questions, if I were putting my money to work, that I would be asking. And I'm getting those questions a lot from buyers these days.
So those are, that's the big, that's the big one is, is the brand. Make sure you like the brand you're getting into.
Rick Ormsby 1:01:48
Here's a question for another day. We won't be able to answer it here. Not even going to try to, but you know, we're going to start seeing the unraveling of these large franchisees here. I wonder if that's going to happen at the franchisor level at some point too, when they suck all the, you know, suck, they either go public or have gone public and then it becomes a a a a non growth story.
And then they become private in the hands of private investors again, you know that that that's happened since the beginning of time, that circle too. So it'll probably come back around at some point, may witness it in a couple of years or so, but we are close to the end. Any further questions, let's just make sure we monitor that and.
James Derek Ball 1:02:24
There's there's one more. Have franchisors become more or less stringent compared to last year? I think no change. Generally speaking, they're pretty stringent though. You need to be in the market. You got to put at least 30% down. Some brands are now requiring operational experience. So I won't name the brand, but there's a brand out there right now.
Rick Ormsby 1:02:25
Yeah.
Yeah.
James Derek Ball 1:02:44
That if you don't have prior operations in the market you're buying, it's a 0% chance they'll approve you, period. No questions, no negotiation, no nothing. So it depends on the brand. Ultimately, the better a brand is doing, the more stringent they're going to be. But generally speaking, I say no change from 2025 and in our comment.
2025 was they were getting pretty picky on on who they allow in.
Rick Ormsby 1:03:07
What one of the things that Derek, you talked about earlier, it's interesting was the fact that they that that's a kind of a subtle, quiet, incognito way for franchisors to push private equity out of investing in the space by saying that you have to either operate your stores or you can't buy stores that aren't contiguous to your other stores that that in effect.
Leaves the brands to only approve existing franchisees or owner operators, and I think that trend is very clearly, you know, kind of coming out and changing. There's a definitely a bent against the professional investing franchisee coming into these systems. There's no doubt about it for most.
Most of them going forward, people want operators now. And for my money, I would say that when the good old days happens again, where you have people who are operating 30 restaurants and know the band leader in their small town and their soccer mom and whoever the heck it is, those are the types of restaurants and establishments that we appreciate the most, right? So don't be surprised.
Surprised to see it go back to the way it was at some point. Thank you so much for being here, for listening. We're very thankful for your time. Call us always if you have any questions and be looking for an e-mail and then you can get the transcript on our website at Unbridledcapital.com. Gentlemen, thank you guys for your time and expertise today.
And see you all later.
James Derek Ball 1:04:27
Thanks everybody. Take care.
Raymond Buehner 1:04:29
Thanks everyone.
Peter Fisher 1:04:29
Thanks.
Rick Ormsby 1:04:30
Bye now.